Struggling Stocks, Falling Oil, Rates and Recession Fears
- Fall in US crude
- German bonds head for worst month in 30 years
- US stocks fall, European stocks at six-week low
- Gold slips to six-week low
NEW YORK, Aug 31 (Reuters) – Global stocks fell again on Wednesday as expectations that central banks on both sides of the Atlantic are likely to raise borrowing costs again next month soured sentiment and stoked recession fears, which drove oil prices below $90 a barrel. .
Wall Street struggled to hold onto early gains as European stocks deepened their losses, hampered by fears that tighter monetary policy around the world could hurt demand and dampen the global economy. Read more
Highlighting the growth risks on the horizon, analysts at Capital Economics warned of a possible recession in the United States.
Join now for FREE unlimited access to Reuters.com
“Our composite tracking models suggest the odds of a recession over the next year have increased markedly,” they said.
“That said, the immediate risks still appear low, with rising real incomes due to the continued decline in gasoline prices expected to drive a strong rebound in gross domestic product in the third quarter.”
The MSCI All Country Stock Index (.MIWD00000PUS) fell 0.65% and was down 18.8% for the year as the war in Ukraine, soaring energy prices and rising interest rates interest wreaking havoc on risky assets.
The US S&P 500 Index (.SPX) lost 0.8%, the Dow Jones Industrial Average (.DJI) fell 0.9% and the Nasdaq Composite (.IXIC) lost 0.6%.
As of Wednesday’s close, the three major indexes had suffered their biggest monthly percentage declines in August since 2015, with the S&P 500 having fallen more than 8% since mid-August.
The European STOXX stock index of 600 companies (.STOXX) fell 1.1% to a six-week low, leaving it down nearly 15% for the year.
Economic news remained grim with overnight data showing economic activity in China, the world’s second-largest economy, extended its decline this month after new COVID-19 infections, the worst heatwaves since decades and the difficulties of the real estate sector. Read more
Eurozone headline inflation for August hit a new record high, beating expectations and strengthening the case for a big rate hike by the European Central Bank on September 8. read more
Russia cut off gas supplies through a major pipeline to Europe on Wednesday for three days of maintenance amid fears it will not be reignited, adding to concerns over energy rationing over the next few months. winter in some of the wealthier countries in the region. Read more
The energy crisis has already created a painful cost of living crisis for consumers and businesses and forced governments to spend billions to ease the burden. Read more
German bonds had their worst month in more than 30 years. Read more
Markets are betting that the US Federal Reserve and the ECB will both raise their core borrowing costs by 75 basis points when they meet next month.
Jamie Niven, senior bond fund manager at Candriam, said the rate hikes planned for this year had largely priced in to markets, particularly in the United States.
But investors began pricing in previously scheduled rate cuts next year after Fed Chairman Jerome Powell’s hard-hitting speech last week.
“I think there’s more pain ahead in credit markets and in equity markets before we see better prospects. I don’t think central banks will be in a state where they can cut to mitigate kind of hit the recession,” Niven said.
While there can sometimes be quick reversals or dramatic rallies into riskier assets like stocks, they will ultimately be weaker towards the end of the year, Niven added.
U.S. nonfarm payrolls data due Friday could argue for a big rate hike, analysts said.
US CRUDE BELOW $90 A BARREL
In Asia overnight, the Japanese Nikkei (.N225) fell 0.4% and the Chinese blue chips (.CSI300) were little changed. Hong Kong’s Hang Seng (.HSI) fell 0.16%, recovering from steep early declines.
The two-year US Treasury yield, which is relatively more sensitive to the outlook for monetary policy, hit a 15-year high of 3.497% overnight, but fell back to 3.4847%.
The 10-year Treasury yield hit a new two-month high at 3.1870%.
The dollar index was flat at 108.69, having started the week by hitting a two-decade high at 109.48.
The pound has had its worst month since the start of 2017, having fallen 16% against the dollar, as UK inflation is already at 10% and rising, with the Bank of England expected to rise its rates next month.
Gold fell 0.8% to $1,710.3239 an ounce, a six-week low.
Crude oil extended its slide after declines of more than $5 overnight, with traders citing fears of slowing demand from China and the West.
U.S. West Texas Intermediate (WTI) crude futures stabilized 2.3% at $89.55 a barrel, after falling $5.37 in the previous session, on recession fears . Brent futures for October fell 2.8% to $96.49.
Cryptocurrencies defied the general gloom and held on to their gains, with bitcoin up 1.7% to $20,172.
Join now for FREE unlimited access to Reuters.com
Reporting by Huw Jones in London and Koh Gui Qing in New York Editing by Kirsten Donovan and Matthew Lewis
Our standards: The Thomson Reuters Trust Principles.