Markets around the world fell on Monday, extending their losses from last week, as higher-than-expected inflation and weaker-than-expected economic growth reversed the outlook for interest rates and corporate earnings. Wall Street futures pointed to another sharp drop at the start of trading as a selloff continues.
Asian stock markets closed in the red, with Japan’s benchmark Nikkei 225 index falling 3 percent and South Korea’s Kospi falling 3.5 percent. In Hong Kong, shares fell 3.4 percent, while the index of China’s largest Hong Kong-listed companies fell 3.6 percent. The Japanese yen fell to a 24-year low against the US dollar.
Fears in the region increased on Monday after officials in Beijing and Shanghai re-imposed social distancing measures after another round of mass testing over the weekend. China’s economic growth has been hit by the country’s “zero Covid” pandemic policy that left much of the country under some form of lockdown for months earlier this year.
In Europe, the Stoxx 600 Index was down 2.2 percent in early trading, hitting its lowest since early 2021. Britain’s FTSE 100 fell 1.6 percent after news that the economy The country’s contracted unexpectedly in April, falling 0.3 percent from March. Economists expected a small increase in growth.
European bond prices fell sharply as traders priced in a series of interest rate hikes by the European Central Bank in reaction to high inflation in the eurozone. Yields on German and Italian government bonds, which move inversely to prices, hit multi-year highs, implying a sharp rise in borrowing costs.
Wall Street was poised for another sell-off on Monday, with futures indicating stocks were headed for a fourth straight decline. Premarket trading suggested the S&P 500 would open 2.5 percent lower, taking it into bear market territory, defined as a 20 percent drop from a recent high. The index briefly dipped below that level last month, a sign of a significant shift in market sentiment, before recovering to close just above it.
The benchmark U.S. stock index is now “in the bad day’s move of a bear market, and equity futures suggest we haven’t yet seen all of the negative sentiment expressed,” ING analysts wrote in a statement. note to investors on Monday morning.
A report on Friday showed a spike in inflation in the United States, rattling markets as investors worried the Federal Reserve may have to raise interest rates higher and faster than expected to curb rising prices, a move that could hurt the US economy. In anticipation of these rate hikes, and the effect they may have on economic growth, short-term government bond yields have risen faster than long-term yields, meaning the so-called yield curve is near. to “reverse,” a signal that has often preceded recessions.
Cryptocurrencies, which some believe could act as a haven in times of inflation and turmoil, have also been hit hard. Bitcoin, the largest cryptocurrency, fell to an 18-month low of around $24,000. It has lost about half its value so far this year.