US stocks started the week cautiously and government debt yields edged higher as investors looked to the prospect of additional monetary policy tightening by the Federal Reserve.
The broad S&P 500 index gained 0.2% in late morning Wall Street trading, while Europe’s pan-European Stoxx 600 fell 0.7%. The S&P fell 0.9% earlier.
Yields on 10-year US government debt, a benchmark for global borrowing costs, rose above 3.5% for the first time since 2011 when investors sold bonds, before falling back to 3.5%. ,47%.
Monday’s drop in performance came after the MSCI broad index of developed and emerging market stocks fell 4% last week in its biggest weekly drop since June. Concerns about the health of the global economy and the specter of even larger rate hikes from major central banks have spooked investors.
“This is like a work or break week. Samy Chaar, chief economist at Lombard Odier, said there is still the revaluation anxiety we experienced last week and it makes no sense that sentiment is heading for something. better.
In terms of currencies, the dollar gained about 0.3% against a basket of other currencies, expanding increased sharply in recent months has been driven by rising US interest rates. The greenback spiked to the pound, weakening below $1.14.
“The money market is probably the best summary of how close we are to a breakout point,” Chaar said. “The big question will be whether we get some kind of positive signal from the central banks about when their bull cycle will peak. . . You don’t see many avenues where the Fed can rest easy. “
The consensus expectation on Wall Street is that the Fed will raise rates by 0.75 percentage points at the end of its two-day meeting on Wednesday. Market forecasts for a third straight increase of that magnitude were bolstered last week by data showing US consumer price inflation cooled less than forecast in August.
Pricing based on federal funds futures contracts suggests the Fed will raise its key rate to 4.4% in the first months of 2023, from the current level of 2.25 to 2.5% when Policymakers try to cool down inflation.
Investors are concerned that the central bank’s efforts to reduce inflation by tightening the currency will drag the US economy into recession as debt repayment costs rise for companies and borrowers. individual.
Yields on 10-year inflation-linked US bonds, which indicate the return investors can expect to receive after accounting for inflation, hit 1,159%, the highest since 2018. The so-called is the actual return to be about minus 1% initially. year, raising valuations of fast-growing technology companies that weigh heavily on US stock indexes.
The Japanese yen fell 0.3 percent to 143 yen against the dollar after last week hit a 24-year low as the government stepped up its verbal intervention to calm the country’s currency markets.
The Bank of Japan will make its latest policy decision on Thursday. Most economists expect the BoJ to keep the 10-year bond yield near zero as it tries to induce longer-term inflation in an economy that has experienced decades of humid price growth. wet.
The Bank of England will also announce its rate decision on Thursday, with the City of London consensus forecast for a 0.5 percentage point increase.
Asian shares also fell, with the MSCI index of regional shares down about 0.4 percent. Stock markets in the UK and Japan were closed for public holidays.