Global stock markets started September on a bearish note, extending their declines into a fifth day, as weak data from China and fresh Covid-19 lockdowns in the world’s second-largest economy weighed on sentiment.
A FTSE gauge of global shares lost 0.7 percent on Thursday, having closed the previous session down 0.6 percent. Europe’s regional Stoxx 600 fell 1.7 percent, while futures contracts that track Wall Street’s broad S&P 500 fell 0.8 percent.
In Asian markets, Hong Kong’s Hang Seng lost 1.8 percent and mainland China’s CSI 300 fell 0.9 percent after Chinese authorities moved to lock down the southwestern megacity of Chengdu while They adhered to the country’s zero covid policy.
A survey of manufacturers in China also came in worse than expected, with Caixin’s Manufacturing Purchasing Managers’ Index posting a reading of 49.5 for August, down from July’s 50.4 and below expectations of 50. ,two. Any number below 50 indicates shrinkage.
Grace Ng, an economist at JPMorgan, said the report raised “concerns about slowing external demand.”
Hours later, another S&P Global manufacturing index hinted at a worsening outlook in the eurozone, giving a reading of 49.6 from 49.7 in July.
Thursday’s stock market declines came after hardline rhetoric from the US Federal Reserve put the brakes on this year’s summer rally. Fed Chairman Jay Powell said last week at the Jackson Hole Economic Symposium that the central bank “keep it up until you finish the job” on inflation.
Rate-setters in the world’s major economies are driving monetary policy tightening in an effort to curb rapid price growth, even as higher borrowing costs threaten to exacerbate a protracted slowdown.
German and UK bond prices fell further after falling on Wednesday on expectations of such an adjustment, compounded by data showing Eurozone inflation reached 9.1% in August, up from 8.9 percent in July and above economists’ forecast of 9 percent. The European Central Bank is due to announce an interest rate decision next week; raised borrowing costs in early summer for the first time in more than a decade by an unexpectedly large 0.5 percentage point to zero.
Markets are now pricing in the possibility of an even larger 0.75 percentage point hike at the ECB meeting in September.
Investors also raised their estimates of how much the Fed will raise borrowing costs, with prices pointing to a rate of almost 3.9 percent for February 2023, above early August expectations of less than 3.3 percent. percent. The central bank’s current target range is 2.25 to 2.50 percent, after it raised rates by 0.75 percentage point in July for the second straight time.
US government debt came under pressure on Thursday in a sign of lingering concerns about rate hikes, with the 10-year Treasury yield rising 0.07 percentage point to 3.21 percent. The yield on the two-year note, which closely tracks interest rate expectations, rose as much as 0.05 percentage point to 3.5 percent, hitting a new 15-year high. Bond yields rise as their prices fall.
The anticipation of tighter monetary policy and a protracted recession has already fueled anxiety over corporate financial health, with the yield gap between US high-yield corporate debt and government bonds widening in recent weeks. The respective spread, which reflects the premium investors demand to take on more risk, rose from just over 4.2 percentage points in mid-August to 5 percentage points as of Wednesday’s close, according to an index from Ice Data Services.