By Herbert Lash and Marc Jones
NEW YORK/LONDON (Reuters) – U.S. Treasury yields rose and a gauge of global equity markets slumped on Thursday, erasing much of the prior day’s relief rally, as investors worry central banks around the world need to aggressively tackle high inflation as growth slows.
A sharp decline on Wall Street snuffed a rally in European stocks as fears of a recession, as the Bank of England suggested after it hiked rates, squashed enthusiasm from Federal Reserve Chair Jerome Powell’s remarks on Wednesday. He said policymakers were not considering 75 basis-point moves in the future.
The yield on 10-year Treasury notes rose 16.9 basis points to 3.084%, while inflation-hedge gold bounced higher after Powell also emphasized risks to the economy from soaring inflation.
“It’s a very messy environment for investors right now,” said Anthony Saglimbene, global market strategist at Ameriprise Financial. “There’s an overall negative sentiment in the market.”
Markets will remain volatile until there is a clear picture on Fed rate policy and its trajectory later this year, he said.
Investors are “worried that when we get to the back half of this year, the Fed is going to be so aggressive with raising interest rates that they’re going to take the economy into a recession.”
MSCI’s gauge of stocks across the globe shed 2.31% and the pan-European STOXX 600 index lost 0.82%.
On Wall Street, the Dow Jones Industrial Average fell 2.63%, the S&P 500 lost 3.09% and the Nasdaq Composite dropped 4.32%.
Britain’s pound and government bond yields fell sharply after the BoE raised rates to their highest since 2009 and warned the UK economy was at risk of recession.
Sterling was last at $1.2352, down 2.13% on the day, while the euro was down 1.01% to $1.0514 after dire German industrial orders data.
“The German economy is programmed for a downturn,” said Thomas Gitzel, chief economist at VP Bank.
“The war in Ukraine, the supply chain problems and high rates of inflation are spoiling companies’ appetite for investment,” he said, adding that a recession was becoming increasingly likely.
The dollar index rose 1.131%, rebounding after falling sharply on Wednesday following the Fed’s rate hike. It is up more than 7% so far this year. [/FRX]
China’s battered shares recovered some ground, gaining 0.7% as mainland markets resumed trade after a three-day holiday.
Investors also cheered a pledge by China’s central bank for more monetary policy support to help businesses badly hit by the latest COVID-19 outbreak.
Oil prices rose as a stronger dollar offset supply concerns after the European Union’s plans for new sanctions against Russia, including an embargo on crude in six months. Traders noted OPEC+ again rebuffed consumer calls for a faster pace of output rises.
U.S. crude was last up 0.89% to $108.77 per barrel and Brent was at $111.48, up 1.22% on the day.
(Reporting by Herbert Lash, additional reporting by Marc Jones in London; editing by Chizu Nomiyama, Alexandra Hudson and Susan Fenton)