Global stocks on Monday suffered their worst one-day drop since the early months of the coronavirus pandemic in 2020, as investors fret over signs of a slowdown in the world’s big economies at a time when central banks are reining in crisis-era stimulus measures.
The FTSE All-World barometer of global equities fell 3 percent, its biggest drop since June 2020, and hit its lowest level since December 2020.
Concerns about rising rates have been compounded by signs that growth in the world’s big economies may be slowing. Chinese export growth fell to its lowest level in two years last month, according to data released on Monday, which followed reports last week that pointed to a slowdown in the manufacturing sectors of Germany and France.
Wall Street’s blue-chip S&P 500 index fell 3.2 percent and the tech-focused Nasdaq Composite fell 4.3 percent. Europe’s regional Stoxx 600 index fell 2.9 percent, while China’s CSI 300 fell 0.8 percent and Tokyo’s Topix fell 2 percent.
“It’s hard to say if everything is low and bearish enough,” said Joost van Leenders, equity strategist at Kempen Capital Management, adding that investors no longer expected the Fed to prioritize stabilizing financial markets, as it did during the beginning of the coronavirus. pandemic.
Brent crude, the international oil benchmark, fell nearly 6 percent to $105.94 a barrel, reflecting concerns about weaker demand.
Natural gas futures fell even more sharply than crude oil, with the previous month’s Henry Hub contract falling more than 12 percent in US afternoon to just over $7 per million British thermal units. .
Analysts said forecasts for warmer-than-expected US weather and another strong injection into storage were partly behind the sell-off, which came after Henry Hub hit a 14-year high last week. last week.
Last week, the Fed raised its main interest rate by 0.5 percentage point, signaling more increases of the same magnitude were on the horizon as it seeks to cool scorching inflation.
“No one knows for sure if that’s enough to stifle future inflation,” said Nicholas Colas, co-founder of DataTrek Research. “Hence all the recent market volatility.” Economists expect data released on Wednesday to show that US consumer prices rose 8.1 percent in April compared to the same month last year.
US government bonds initially came under selling pressure on Monday, pushing the yield on the 10-year US Treasury note above 3.2 percent. Yields rise when prices fall. However, the debt rallied later in the day, lowering the yield to around 3.03 percent, down 0.1 percentage point on the day.
Meanwhile, the US 10-year real yield, which provides a snapshot of the long-term returns investors can earn after inflation on ultra-low-risk securities, jumped as much as 0.1 percentage point on Monday. to 0.35 percent, having started the year around minus 1 percent. It fell to around 0.28 percent in afternoon trading on Wall Street.
Rising interest rates have profoundly changed investors’ calculus when deciding how much capital to invest in risky assets.
Bitcoin, considered a highly speculative asset, fell more than 10 percent on Monday to its lowest level since June last year. Meanwhile, Cathie Wood’s Ark Innovation exchange-traded fund, which owns many stocks that rose strongly at the height of the pandemic, fell 10 percent.
Rising interest rates and growth concerns have also weighed on the global corporate bond market.
A measure of the cost of protecting against defaults on European corporate bonds rose to its highest level since 2020 on Monday. The iTraxx Europe index, which tracks a basket of credit default swaps and is seen as a gauge of investor sentiment toward the risk in European markets, reached 100 basis points, compared to 49 bp at the beginning of the year.
Meanwhile, Bank of America analysts noted Monday that the average price of investment-grade US corporate bonds has fallen to just over 93 cents on the dollar. That was below the low reached during the pandemic-induced recession in March 2020 and at levels not seen since May 2009, when the market was still recovering from the global financial crisis.
Additional reporting by Derek Brower and Joe Rennison