Global stocks fall on recession and central bank interest rate hike fears

US and European stocks fell on Monday as the outlook for major global economies darkened, with technology stocks particularly hit hard on fears the Federal Reserve would impose a hawkish tone at this week’s central bank summit.

The tech-dominated Nasdaq Composite was down 2.6% in mid-afternoon trading, while the broader S&P 500 fell 2.2%.

Netflix and rival Warner Bros Discovery were among the biggest discounters, dropping 6.7% and 6.5%, respectively. Amazon fell more than 3.7%, while semiconductor giant Nvidia lost 4.4%.

“Nasdaq is at the heart of interest rate uncertainty in the equity market,” said Julian Howard, Chief Investment Officer at GAM. “[The Fed] are talking about being hawkish, which is making the market quite nervous. Unfinished work [on inflation]. “

The Performance (%) line chart shows US stocks have fallen since the end of last week

The US stock market rallied since late July but on Friday fell to its first weekly decline in five weeks. Investors have warned, however, that the prior gains do not reflect fundamental bullish investor optimism.

The turnarounds have been spurred by hedge funds closing down bets and traders on Monday warning that the expiration of a large block of options on Friday could increase volatility in the stock market. days to come, as happened at the beginning of the week.

In the currency markets, the euro fell 1% against the dollar to $0.993, sliding back below $1 for the second time this summer. It reached parity with the greenback in July for the first time in two decades. Worry about Russia could cut energy supply Gas and electricity prices in Europe will rise on Monday, adding to fears that the continent could slip into recession.

The Stoxx Europe 600 Equity Assessment Index in the region closed 1% lower, with Germany’s Dax down 2.3%.

The dollar index, which tracks the currency against a basket of peers and tends to rise in times of uncertainty, was up 0.8%. The index is up nearly 3% this month, back near the two-decade high it hit in July.

The growing sense of economic gloom comes ahead of the Fed’s annual meeting in Jackson Hole, Wyoming, which begins on Thursday and is often used by the central bank to make major policy announcements. Fed Chairman Jay Powell is expected to signal that the central bank will continue to aggressively raise interest rates as it combats rising inflation.

“I wouldn’t believe Powell gave a strong signal at Jackson Hole that he’s ready to change direction on inflation,” said Joost van Leenders, senior investment strategist at Van Lanschot Kempen. “[He will] justify why they raise prices so quickly and why they have to.”

Andrew Hollenhorst, economist at Citigroup, echoed that sentiment, saying: “We continue to expect a relatively hawkish speech from Chairman Powell at Jackson Hole on Friday.”

He noted that US Treasury yields and the dollar have been on the upswing lately, as investors turn to expectations of more aggressive Fed tightening even after US inflation eased slightly in July. from June.

The yield on the policy-sensitive two-year Treasury note traded at 3.34% on Monday, from about 2.5% at the end of May and less than 1% at the end of last year. Traders on Monday said they saw a flurry of sales of call options on Treasury futures – betting that the value of the futures contract would fall.

John Brady, managing director at futures brokerage RJ O’Brien, said bearish bets, including many that expire on Friday, are being made in anticipation of a potential sell-off on the market. Treasury market after Jackson Hole.

Global developed market stocks rallied strongly in July after a historic first half cycle and remained up in August through the end of Friday. However, many investors have questioned the durability of the recent rally given the strong economic headwinds expected for the rest of this year and into 2023.

“I am not buying into this relief rally. I think we’re going to be more disadvantaged in risk markets for the rest of the year,” said Jamie Niven, a senior fund manager at Candriam.

Elsewhere, mainland China shares rebounded on Monday after the People’s Bank of China cut mortgage rates for the second time this year, in an effort to support the real estate sector. real estate debt piled up. The CSI 300 index of stocks listed in Shanghai and Shenzhen closed up 0.7%.

Additional reporting by Eric Platt in New York

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