Shares suffer renewed decline on growth fears, dollar extends rally

LONDON, May 9 (Reuters) – Stocks fell heavily again on Monday and the dollar rocketed to a new high in two decades, as concerns over higher interest rates and a tightened lockdown in Shanghai feared investors that the global economy is headed for a slowdown.

After a pulse-pounding session on Friday, in which US stocks sold off sharply as a fresh rise in long-term US Treasury yields unnerved investors, markets got off to a shaky start to the week, with most indices in the red.

Central banks in the United States, Britain and Australia all raised interest rates last week, and investors are bracing for more tightening as policymakers try to bounce back from rising inflation.

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“We see recession risk rise to about 30% in the next 12 to 18 months,” said Dan Ivascyn, group chief investment officer at bond giant PIMCO.

“One of the main reasons for this is that the Fed and other central banks seem determined to get inflation under control.”

Besides the tightening of financial conditions, there was much more to worry about on Monday.

China’s zero-COVID policy seemed unstoppable, with Shanghai tightening its citywide lockdown for 25 million residents. read more

Speculation that Russian President Vladimir Putin would declare war on Ukraine to call up reserves during his speech at the “Victory Day” celebrations also hurt market sentiment. Putin has so far characterized Russia’s actions in Ukraine as a “special military operation”, not a war. read more

Wall Street futures fell sharply, with S&P 500 futures falling 2% and Nasdaq futures 2.5%. The S&P 500 and Nasdaq posted their fifth consecutive week of declines on Friday – their longest losing streak in a decade.

The Euro STOXX weakened 2% (.STOXX). The German DAX (.GDAXI) lost 1.6% and the British FTSE 100 (.FTSE) 1.78%.

MSCI’s leading emerging markets stock index (.MSCIEF) fell 1.2% to its lowest level since July 2020.

The MSCI World Index (.MIWD00000PUS) fell 0.7%, close to the 17-month intraday low reached on Friday.

world stocks

MSCI’s widest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell 1.4% and Japan’s Nikkei (.N225) 2.53%. Chinese blue chips (.CSI300) fell 0.8%, while the yuan in offshore markets fell to just 6.7759 per dollar, the weakest since October 2020.

The big data event of the week is the US consumer price report due Wednesday, when only a slight decline in inflation is forecast, and certainly nothing to stop the Federal Reserve from rising by at least 50 basis points in June.

The US 10-year bond yield reached a new 3-1/2-year record of 3.203% on Monday.

With investors juggling so many worries, one place they seek safety is in the dollar.

The dollar index, which measures the dollar against a basket of currencies, rose a whopping 0.4% to 104.19 , the latest in a series of 20-year highs.

“Risk appetite is fragile and interest rate spreads continue to point to further gains in the Dollar Index,” said Sean Callow, senior FX strategist at Westpac.

“We’re looking at continued demand for DXY (the dollar index) on dips, with 104 already under investigation and still potential for a multi-week run towards 107.”

The rising dollar hammers on other currencies. The euro briefly slipped below $1.05, while the Japanese yen fell to its weakest since 2002.

Expectations that the Fed will be more aggressive in raising interest rates are supporting the dollar, as are investor sentiment that the US economy will hold up better than a eurozone hit by the fallout from the war in Ukraine.

But rates are also rising in the eurozone. On Monday, German 10-year bond yields hit a new highest level since 2014, buoyed by aggressive policymaker Robert Holzmann who on Saturday said the European Central Bank would need to raise interest rates three times this year to fight inflation.

The agenda is packed with Fed speakers this week, giving them plenty of opportunity to keep up with the hawkish chorus.

Oil prices initially hit the bull’s eye after the Group of Seven Nations committed to ban or phase out Russian oil imports over time, before falling. read more

Brent fell 2.15% to $109.97 at 1115 GMT, while US crude fell 2.39% to $107.15.

The gold price lost 1.24% to $1,859 an ounce after it struggled to gain traction as a safe haven lately.

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Reporting by Tommy Wilkes; Additional reporting by Wayne Cole in Sydney; Editing by Bradley Perrett and Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.

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