U.S. stocks fell on Monday and yields on government debt rose as investors awaited the prospect of additional monetary policy tightening by the Federal Reserve.
The broader S&P 500 index fell 0.8 percent in morning trade on Wall Street, while Europe’s broader Stoxx 600 fell 0.6 percent.
The yield on 10-year U.S. government debt, a gauge of global borrowing costs, pushed above 3.5 percent for the first time since 2011 as investors sold bonds.
Monday’s gloomy performance comes after MSCI’s broadest index of developed and emerging market shares fell 4 percent last week in its biggest weekly drop since June. Concerns about the health of the global economy and fears of further big rate hikes from major central banks have spooked investors.
“It feels like a make-or-break week. There’s residual anxiety from the revaluation we went through last week, and there’s no sense that that sentiment is changing for the better,” said Sammy Saar, chief economist at Lombard Odier.
Among currencies, the dollar rose about 0.4 percent against a basket of other currencies. A powerful surge in recent months This was fueled by rising US interest rates. The rising greenback hit sterling, which weakened below $1.14.
“The currency market is probably summarizing how close we are to some sort of tipping point,” Saar said. “The big question will be whether we’ll get some positive signals about when the central banks’ hiking cycle will peak. . . . You don’t see a lot of paths that the central bank can be committed to.”
The consensus expectation on Wall Street is that the central bank will raise interest rates by 0.75 percentage points at the end of its two-day meeting on Wednesday. Market forecasts for a third straight rise in the measure were bolstered last week by data showing US consumer price inflation cooled less than forecast in August.
Prices based on federal funds futures suggest the Fed will raise its key interest rate by 2.25 to 2.5 percent to 4.4 percent in the early months of 2023 as policymakers try to curb inflation.
As debt servicing costs for companies and individual borrowers rise, fears are growing among investors that the Fed’s efforts to control inflation could drag the US economy into recession.
The yield on 10-year inflation-linked U.S. notes hit 1.159 percent, the highest since 2018, the return investors expect after accounting for inflation. Real yields were initially minus 1 percent. This year, touting the valuations of fast-growing technology companies, they make up large weights in US stock indexes.
The Japanese yen fell 0.3 percent to ¥143 against the dollar, hitting a 24-year low last week. Before that, the government stepped up its verbal intervention aimed at calming the country’s currency market.
The Bank of Japan is due to take its latest policy decision on Thursday. Most economists expect the BoJ to keep 10-year bond yields close to zero in an effort to spur more sustained inflation in an economy that has endured decades of sluggish price growth.
The Bank of England is also due to announce its decision on interest rates on Thursday, with the consensus forecast among City of London analysts pointing to a 0.5 percentage point rise.
Asian shares also fell, with the MSCI gauge of shares in the region falling about 0.5 percent. Stock markets in the UK and Japan were closed for public holidays.
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