Global stocks weakened and Treasury yields rose on Monday after central banks warned investors to brace for a sustained period of higher interest rates.
Policymakers from the US Federal Reserve and the European Central Bank used speeches at last week’s annual meeting in Jackson Hole, Wyoming, to reiterate their commitment to fighting inflation, despite the risk of pushing the ‘economy towards recession.
Wall Street’s benchmark S&P 500 index fell 0.7% on Monday, extending its losses after a sharp drop when Fed Chairman Jay Powell spoke last Friday. The tech-dominated Nasdaq Composite lost 1%.
US Treasury prices, which were more muted immediately after Powell’s speech, fell further on Monday. The yield on the two-year note, which is particularly sensitive to short-term interest rate expectations, reached 3.48 percent, its highest level since 2007, before retreating to 3.43 per cent, up 0.03 percentage points for the day. Bond yields rise when prices fall.
The benchmark 10-year Treasury yield rose 0.07 percentage points to 3.11%.
The impact of Powell’s hawkish speech, in which he warned that the Fed “must stay in until the job is done,” was also reflected in the Vix volatility index, a measure of swings lations expected of US stocks which is commonly known as Wall. The “fear indicator” of the street. The Vix rose to 27.7, its highest point since mid-July.
“Officials remain firmly committed to returning inflation to the central bank’s 2% target,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore. “We think the chances of a 0.75 percentage point move next month have increased and we will be watching the US payrolls and consumer inflation data for August closely.”
Several European policymakers also warned that monetary policy should remain tight in the eurozone for an extended period.
The continent’s main stock indexes fell, but recovered somewhat from their initial lows. The benchmark Euro Stoxx 600 was 0.8% weaker. Germany’s Dax was down 0.6% and Paris’s Cac 40 was down 0.8%. London was closed for a public holiday.
Japan’s benchmark Topix led the bear markets in Asia with a 1.8% drop. The Hang Seng fell 0.7%.
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Italian 10-year bond yields rose 0.12 percentage points to 3.79 percent, approaching the 4 percent threshold that many see as the point where its debt starts to look unsustainable.
The Japanese yen fell 0.8% to 138.70 yen against the dollar. Sterling fell 0.4 percent to $1.17, hitting its lowest level against the greenback since the early days of the coronavirus pandemic after Goldman Sachs cut its economic growth expectations for the United Kingdom to 3.5 percent, from 3.7 percent previously.
Additional reporting by Martin Arnold in Frankfurt