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Global stocks hit their lowest level in 2 years
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US benchmark exceeds 4% for the first time since 2010
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Pound falls as UK economic strategy comes under fire
(Updates throughout with commentary, price)
By Amanda Cooper
LONDON, September 28 (Reuters) –
Global stocks fell to their lowest level in two years on Wednesday as soaring borrowing costs and a worsening energy crisis heightened fears that the world could tip into recession, pushing investors investors to rush to the safe haven dollar.
Yields on 10-year U.S. Treasuries rose above 4.0% for the first time since 2010, with markets betting that the Federal Reserve may have to raise interest rates past 4.5% in its crusade against inflation.
The pound came under fire again following a further surge in UK bond yields that pushed government borrowing costs above those with heavier debt burdens, such as Greece or the UK. Italy.
The International Monetary Fund (IMF) and ratings agency Moody’s criticized Britain’s new economic strategy announced on Friday, which caused a collapse in the value of British assets. Investors braced for more havoc in bond markets, which has already forced the Bank of England to promise “meaningful” action.
Central banks around the world raised interest rates last week and said they would do whatever it takes to fight runaway inflation, especially as winter in the northern hemisphere risks aggravating a global energy crisis.
“Inflation has surprised on the upside everywhere and the strength of the US dollar is becoming a headache for global central banks,” said Ugo Lancioni, head of global currency at Neuberger Berman.
The dominance of the dollar this year has compounded the problem, adding billions to food and energy import bills for everyone except the United States.
“The energy supply shock has caused a terms of trade crisis for all energy-importing countries. The US dollar is likely entering an ‘overshoot’ phase due to risk aversion, weak growth lower global and higher US real rates,” he said.
The MSCI All-World Index fell 0.7%, falling for the seventh day in a row, to its lowest level since November 2020. It is heading for a 9% drop in September – its biggest monthly drop since the 13% drop of March 2020.
In Europe, the STOXX 600 lost 1.8%, with all sectors except healthcare – often seen by investors as a port in the midst of a storm – in the red. Across the region, the DAX sensitive to exports <.GDAXI> fell 2.1% to its lowest level since the end of 2020, while the FTSE 100 fell nearly 2% and the domestically focused FTSE 250 lost nearly 3%.
Wall Street looked set for a weak open, as S&P 500 futures fell 1.1%, while Nasdaq futures lost 1.5%.
European government bonds came under pressure again as the region’s energy crisis escalated following a series of incidents that led to leaks on the Nord Stream gas pipeline.
Germany’s 10-year government bond yield rose 5 basis points (bps) to 2.3% after hitting a near 11-year high of 2.309%.
“European sovereign yields hit multi-year highs amid concerns over UK policymaking and a rightward shift in Italian policy amid still-high inflation,” JPMorgan analysts wrote in a statement. note.
“The Italian 10-year spread on the German Bund has crossed 250bp, well above the 200bp mark that we believe makes the ECB uncomfortable.”
European benchmark natural gas prices are 150% higher today than they were this time last year.
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At the heart of this latest sell-off in global markets was the UK government’s so-called ‘mini-budget’ last week, which announced a series of tax cuts and few details on how these will be cut. these would be funded.
Gilt prices plunged and the pound hit record highs as a result.
Ray Dalio, the founder of Bridgewater Associates, one of the world’s largest hedge funds, said the government’s plan to sell billions more of UK debt to fund its tax cuts was the icing on the cake.
“The panic selling you are seeing now leading to the fall in UK bonds, currencies and financial assets is due to the recognition that the large supply of debt which will have to be sold by the government is far too large for the demand. ” Dalio
tweeted
tuesday.
“It makes people want to get out of debt and out of the currency. I don’t understand how those who were behind this decision didn’t understand that. It suggests incompetence. Mechanically the UK government works like the government of an emerging country,” he said.
The pound fell 0.6% to $1.0675, still above Monday’s record low of $1.0327, but is expected to see its biggest monthly drop since the Brexit vote in June 2016.
The safe-haven dollar was one of the main beneficiaries of the rout of sterling, hitting a new 20-year high at 114.780 against a basket of currencies.
The euro fell for a sixth straight day, falling 0.4% to $0.95505, just off last week’s 20-year low of $0.9528.
Oil prices fell to their lowest since the start of the year, shaken by worries about demand in the event of a slowing global economy, although cuts in US production caused by Hurricane Ian helped to stem the slide.
Brent last fell 0.3% to $86.02 a barrel, while U.S. crude fell 0.5% to $78.17 a barrel.
(Additional reporting by Wayne Cole in Sydney; editing by Shri Navaratnam, Kim Coghill and Angus MacSwan)