Global shares dipped to a two-year low on Wednesday as they got beaten down by increasing interest rates from various central banks. This led to a broad-based fear of an impending recession, and it expectedly drove investors to seek refuge with the safe-haven US Dollar.
Running to the USD
The US Treasury’s ten-year yields climbed by 4.0% as the market bet that the Feds might need to increase rates beyond the 4.5% target as it fights hard against inflation.
The British Pound has come under intense pressure again due to a new wave of increase in bond returns. It has caused the government’s interest rates to rise beyond countries such as Italy and Greece that have heavier debts.
The International Monetary Fund has criticized the economic plan the UK government is planning to embark on. Investors in the country are getting ready for further impact in the bonds market which prompted the Bank of England to say it will take important action.
Central banks in various countries across the globe have increased their rates and have further committed to doing what it takes to fight inflation. Note that the winter in the northern hemisphere is likely to accentuate the global energy crisis.
Indexes React
Capital Economics’ Head of Global Economics, Jennifer McKeown, said it has become evident that the central banks in leading economies will be aggressive with the tightening policy. Although the goal is to curb inflation, it will be done at a huge cost, she said. As a matter of fact, McKeown said, next year is going to look much like inflation, it will feel like it and sound like it.
The MSCI index has lost about 0.65% to now be at its lowest level since November 2020. It is now going toward a 9% fall in the month of September, to become its month with the biggest decline since the 13% decline of March 2020.
The STOXX 600 in Europe lost 1.2% in the early period of trade. The losses were led by industrial giants like Norsk Hydro the aluminum makers and ThyssenKrupp the steel makers. The DAX, which is heavily sensitive to exports, dropped by 1.7% to reach its lowest depth since 2020, whereas the FTSE index dropped by almost 2% in tandem with other assets in the UK that have been beaten down.
The S&P 500 lost 9% as Nasdaq shed 1.2%. If the S&P 500 falls again at the next opening, it would become its seventh consecutive day of loss. The German government’s bond yield increased by 5 basis points to 2.3% as it almost reached an eleven-year high near 2.309%.