Global stocks on Monday suffered their worst one-day decline since the early months of the coronavirus pandemic in 2020, as investors fret about signs of slowdowns in the world’s large economies at a time when central banks are reining in crisis-era stimulus measures.
The FTSE All-World barometer of global equities dropped 3 per cent, its sharpest fall since June 2020, and hit its lowest level since December 2020.
Worries over rising rates have been compounded by indications that growth in big global economies could 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 pointing to slowdowns in the German and French manufacturing sectors.
Wall Street’s blue-chip S&P 500 index slid 3.2 per cent and the tech-focused Nasdaq Composite dropped 4.3 per cent. Europe’s regional Stoxx 600 index fell 2.9 per cent, while China’s CSI 300 fell 0.8 per cent and Tokyo’s Topix fell 2 per cent.
“It’s difficult to say if everything is low enough and bearish enough,” said Joost van Leenders, equity strategist at Kempen Capital Management, adding that investors no longer expected the Fed to prioritise stabilising financial markets, as it did during the start of the coronavirus pandemic.
Brent crude, the international oil benchmark, dropped almost 6 per cent to $105.94 a barrel, reflecting concerns about weaker demand.
Natural gas futures fell even more steeply than crude oil, with the Henry Hub front-month contract down more than 12 per cent in the US afternoon, to just over $7 per million British thermal units.
Analysts said forecasts for warmer-than-expected weather in the US and another hefty injection into storage were partly behind the sell-off, which came after Henry Hub hit a 14-year high last week.
The Fed last week lifted its main interest rate by 0.5 percentage points, and signalled that more increases of the same magnitude were on the horizon as it attempts to cool scorching inflation.
“No one knows with any certainty if that’s enough to quell future inflation,” said Nicholas Colas, co-founder of DataTrek Research. “Hence all the recent market volatility.” Economists expect data released on Wednesday to show US consumer prices jumped 8.1 per cent in April compared with 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 per cent. Yields rise when prices fall. However, the debt rallied later in the day, bringing the yield down to around 3.03 per cent, down 0.1 percentage points for the day.
Meanwhile, the 10-year US 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 points on Monday to 0.35 per cent, having started the year about minus 1 per cent. It eased to around 0.28 per cent in afternoon trading on Wall Street.
Rising interest rates have profoundly changed the calculus for investors as they decide how much capital they should deploy in risky assets.
Bitcoin, considered to be a highly speculative asset, tumbled more than 10 per cent on Monday to its lowest level since June last year. Meanwhile, Cathie Wood’s Ark Innovation exchange traded fund, which holds many shares that rallied strongly at the height of the pandemic, fell 10 per cent.
Rising interest rates and growth concerns have also fed into the global corporate bond market.
A measure of the cost of protecting against defaults on European corporate bonds rose on Monday to its highest level since 2020. The iTraxx Europe index, which tracks a basket of credit default swaps and is considered a gauge of investor sentiment towards risk in European markets, hit 100 basis points, up from 49bp at the start of the year.
Meanwhile, Bank of America analysts noted on Monday that the average price of investment-grade US corporate bonds has fallen to just above 93 cents on the dollar. That was below the trough reached during the pandemic-induced downturn 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
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