Price hike week has stocks on track for biggest drop since 2020


Pedestrians reflect in a window in front of a board displaying stock prices on the Australian Stock Exchange (ASX) in Sydney, Australia, February 9, 2018. REUTERS/David Gray/File Photo

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  • Everyone except the Bank of Japan is hiking
  • Stocks fall as economic risks grow
  • Yen falls as Bank of Japan leaves policy unchanged

SINGAPORE (Reuters) – Global stocks are headed for their worst week since the pandemic market crash in March 2020, as interest rate hikes in the United States and Britain and a surprise in Switzerland worried investors about future economic growth.

The Bank of Japan was the only central bank in the week that money prices rose around the world, and stuck to its strategy of holding 10-year yields near zero on Friday. Read more

The yen fell more than 1% to 133.88 per dollar in a choppy trade. US futures tried to bounce back and Chinese stocks rose, but that was set against a week of losses and concern that raising interest rates would stifle growth for years.

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MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It fell to a five-week low, affected by the sell-off in Australia where the ASX 200 (.AXJO) It fell 1.8%. Japan’s Nikkei Index (.N225) It fell 1.7% and headed for a weekly decline of about 7%.

S&P 500 futures rose 0.8% and Nasdaq 100 futures rose 1% but were well underwater during the week.

EuroSTOXX 50 futures are up 1% and FTSE futures are up 0.5%.

“We are entering a difficult phase of systemic transformation, where risks to economic growth add to the already hot inflationary background,” said Vincent Mortier, chief investment officer at Amundi, Europe’s largest fund manager.

“Current repricing is taking most of the off-market overvaluation, but current levels are vulnerable to any deterioration in the company’s fundamentals.”

global stocks (.MIWD00000PUS) It’s down 5.7% for the week so far, on track to post its biggest weekly percentage drop in more than two years.

One-way

Bonds and currencies were nervous after a volatile week. In recent sessions, the dollar has pulled back from a 20-year high, but it hasn’t fallen much and looks like it will end the week flat.

The Swiss Franc’s jump made an additional draw this week as it is used as a funding currency and is often exchanged for dollars before exchanging those dollars for high profits – which means selling dollars when the trade reverses.

The dollar was strong on Friday and apart from the yen’s rally, it rose about 0.3% to $1.0518 on the euro and rose about 0.5% to $0.7012 on the Australian dollar.

“The path of least resistance is lower inventories and a stronger dollar,” said Brent Donnelly of Spectra Markets. “The Fed doesn’t know where inflation is heading, and neither do we.”

In addition to the Federal Reserve and the Swiss Central Bank, the Bank of England announced a 25 basis point rate hike this week. It was less than expected but sent gold bonds selling and the British pound higher on bets that future increases will come thick and fast. Read more

“If the central bank doesn’t move aggressively, the returns and the price risk are more in the way of rate hikes down the road,” said John Briggs, strategist at NatWest Markets.

“Markets may continually adjust to expectations of higher global policy rates…as the global central bank’s policy momentum is one-way.”

Sterling rose 1.4% on Thursday and held its gains until Friday as it heads for a flat week. The two-year Treasury rose 18 basis points Thursday to 2.143%.

US employment and housing data came in weak on Thursday, following disappointing retail sales figures, with anxiety hitting the dollar and helping Treasuries. Read more

Benchmark 10-year Treasury yields fell nearly 10 basis points overnight but fluctuated as high as 3.2133% during the Asian morning. Yields rise when prices fall.

Growth concerns led to a brief drop in oil before prices stabilized. Brent crude futures were at $119.70 a barrel at the latest price. Gold settled at $1,844 an ounce and Bitcoin remained under pressure at $20,700.

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(Tom Westbrook reports). Lincoln Fest Editing.

Our criteria: Thomson Reuters Trust Principles.

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