Investors dump shares on growth fears as Swiss, UK hike rates By Reuters

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© Reuters. People wearing protective masks, amid the coronavirus disease (COVID-19) outbreak, are reflected on an electronic board displaying Japan’s stock prices outside a brokerage in Tokyo, Japan, October 5, 2021. REUTERS/Kim Kyung-Hoon

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By Koh Gui Qing

NEW YORK (Reuters) – World stocks plummeted again on Thursday and government bonds hovered near multi-year highs after a series of rate rises from global central banks rekindled fears that aggressive policy tightening could drag economies into recession.

Following the relief rally on Wednesday when investors welcomed the US Federal Reserve’s aggressive move to raise rates by 75 basis points – its biggest rate hike since 1994 – by buying shares, two other spates of policy tightening in Britain and Switzerland seemed to have sobered investors into focusing on the chance that economies could slow the rates rise.

“Can the economy take it? So far, leading indicators show good readings, but we remain wary of a consumer strike,” said Giuseppe Sette, president of the quantitative research firm Toggle.

MSCI’s gauge of stocks across the globe slumped 2.25% to hover near a 19-1/2-month low.

In New York, the dropped 2.5%, the shed 3.3% and the slumped 4.1%. All three indices were trading at their lowest in at least 1-1/2-years.

The dollar, which has benefited from rising US yields, flagged on Thursday, weighed in part by the Swiss franc, which emerged after the Swiss National Bank surprised investors earlier in the day by interest rates for the first time in 15 years by 50 basis points.

The Bank England (BoE) also lifted rates on Thursday for a fifth time since December by 25 basis points, a day after the European Central Bank promised support to temper a bond market rout fueled by hawkish expectations.

By early evening in New York, the Swiss franc was up a whopping 2.9% in its biggest one-day gain in seven years. A surging Swiss franc dragged the down 0.95% to 103.80, pulling it from a 20-year high of 105.79 struck on Wednesday. [USD/]

“There’s a lot of nervousness. After the initial relief to the Fed… markets seem to have woken up that it is still a 75 basis point rate hike,” said Giuseppe Sersale, strategist and portfolio manager at Anthilia in Milan.

“If even the Swiss central bank raises surprisingly by half a point, investors clearly imagine that the tightening of central banks is still very violent. There is very little to be cheerful about,” Sersale added.

Underscoring the gloom in markets, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.84%, and the pan-European index dropped 2.47%. Swiss stocks were close to confirming a bear market pattern, having fallen about 19% since a Jan. 3 closing high.

Britain’s top equity benchmark slumped 3.14% following the BoE’s rate hike, which confounded some forecasts of a bigger move.

“Once again the BoE looks like the timid cat next to the Fed’s roar against inflation. … A 6-3 vote on 25 bps means that the sterling bulls will have little to back up any attempt to push the pound higher against the dollar ,” said Chris Beauchamp, chief market analyst at IG Group in London.

Sterling initially plunged after the BoE’s rate announcement, but recovered in New York trades to be up 1.4% at $1.23485.

EYE-CATCHING

The Fed’s rate rise on Wednesday was accompanied by projections that showed US economic growth slowing to a below-trend rate of 1.7%, and policymakers expect to cut interest rates in 2024.

Data on Friday showed a sharper-than-expected rise in US inflation in May, alongside a University of Michigan survey showing consumers’ five-year inflation expectations jumping sharply to their highest since June 2008.

The SNB helped hike put fresh pressure on European bond prices as investors ramped up bets for ECB rate hikes. Germany’s 10-year yield, the benchmark for the bloc, jumped as much as 26 basis points at one point.

hit a high of 3.495% before pulling back to 3.3125%, but still within sight of an 11-year high of 3.498% struck on Tuesday. [US/]

Oil prices reversed earlier losses after the United States announced new sanctions on Iran, and supply concerns remain at the forefront of energy markets.

jumped 1.45 % to $116.98 per barrel and rose 0.57% to $119.19. [O/R]

Gold, which has been hammered by a stronger dollar and rising yields, rose as the dollar and flagged Treasury yields. jumped 1.2% to $1,854.54 an ounce. [GOL/]

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