Global stocks in sharp weekly decline after rising central bank interest rates

Global stocks fell sharply this week after three major central banks raised borrowing costs, complicating health concerns about the global economy.

The FTSE indicator for the shares of developed and emerging markets has fallen by 5.5% since the end of last week, which would mark its worst performance since the March 2020 pandemic disruptions.

A stock crash on Thursday pushed Wall Street’s S&P 500 down 3.3 percent, amid increasingly bleak market prospects as the Bank of England and the Swiss National Bank followed the Federal Reserve in raising interest rates to cope with rising inflation.

The steep overall decline for the week came even after shares rose on Friday, with the European Stoxx 600 adding 1.1%. The regional index lost 2.5% in the previous session. In futures markets, contracts tracking S&P rose 0.9%.

“Global money is becoming more expensive and has yet to go,” said Robert Carnell, head of Asia-Pacific research at ING. “[US] Stock futures suggest a rebound as we head out for the weekend. But this should probably be treated with a pinch of salt.

European trade on Friday followed a mixed session in Asia, with Japan’s Topix benchmark down 1.7% on Friday while China’s CSI 300 up 1.4%.

The Swiss National Bank surprised markets on Thursday with its first rate hike since the onset of the global financial crisis in 2007, raising borrowing costs by half a percentage point after inflation hit a 14-year high last month. The Bank of England joined the trend hours later with an increase of 0.25 percentage points, as it warned that inflation in the United Kingdom will rise above 11 percent this year. A day earlier, the Fed raised interest rates by 0.75 percentage points in its biggest such move since 1994.

“The more aggressive line of central banks contributes to obstacles to both economic growth and equity,” said Mark Hefele, chief investment officer at UBS Global Wealth Management. “The risk of a recession is increasing, while achieving a soft landing for the US economy seems increasingly challenging.

Showing traders’ expectations of further stock market volatility, Vix – often referred to as the Wall Street Fear Indicator – posted a reading of 32 on Friday, well above its long-term average.

In government debt markets, yields on US government 10-year benchmark bonds fell 0.09 percentage points to 3.21% after sharp fluctuations in recent days as investors adjusted to expectations of higher interest rates and end of the Fed’s bond-buying program, which has put billions of dollars into the US economy. Bond yields decline as their prices rise.

There is an aggressive rise in Fed interest rates it also affected corporate debt marketsas investors withdraw $ 6.6 billion from funds that buy lower-quality U.S. high-yield bonds during the week of June 15.

Italian bonds continued to rise after European Central Bank President Christine Lagarde told the bloc’s finance ministers that questioning the ECB’s commitment to tackling the region’s financial “fragmentation” would be a “serious mistake”.

Italy’s debt has recovered from a heavy sell-off after the ECB said at an unscheduled meeting this week that it would speed up work on a new instrument to counter rising borrowing costs in the eurozone’s weaker economies. Italy’s 10-year yields fell 0.2 percentage points to 3.56% on Friday, down from a high of 4.19% earlier in the week.

In foreign exchange markets, the yen weakened by as much as 2% to 134.91 yen against the dollar after the Bank of Japan deviated from its aggressive tightening strategy by its global counterparts, leaving interest rates unchanged.

Additional reports by Tommy Stubington

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