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Business

The week of interest rate increases has equities heading towards the steepest slide since 2020




  • Everyone except BOJ is on a hike
  • Equities decline as economic risks grow
  • The yen falls when the BOJ leaves the policy unchanged

SINGAPORE, June 17 (Reuters) – World equities were heading for their worst week since the market’s pandemic in March 2020, when US and UK interest rate hikes and a surprise in Switzerland put investors at the forefront of future economic growth.

The Bank of Japan was the only outlier in a week where money prices rose around the world, and stuck to its strategy of keeping 10-year interest rates close to zero on Friday. read more

The yen fell more than 1% to $ 133.88 per volatile trade. US futures tried to jump and Chinese stocks rose, but it was set against a week of losses and concerns that interest rate hikes will stifle growth for years.

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MSCI’s broadest index of Asia-Pacific equities outside Japan (.MIAPJ0000PUS) fell to a five-week low, drawn by sales in Australia where the ASX 200 (.AXJO) fell 1.8%. Japanese Nikkei (.N225) fell 1.7% and went towards a weekly fall of almost 7%.

S&P 500 futures rose 0.8% and Nasdaq 100 futures rose 1%, but they are well below water this week.

EuroSTOXX 50 futures rose 1% and FTSE futures rose 0.5%.

“We are entering a tough phase of regime change, as the risk associated with economic growth adds to the already hot inflation backdrop,” said Vincent Mortier, chief investment officer of Europe’s largest fund manager, Amundi.

“The current reprise takes most of the overestimation out of the market, but current levels are vulnerable to any deterioration in the company’s fundamentals.”

World equities (.MIWD00000PUS) are down 5.7% for the week so far, heading for the steepest weekly percentage fall in more than two years.

A ROAD

Bonds and currencies were nervous after a roller coaster week. In recent sessions, the dollar has retreated from a 20-year high, but it has not fallen far and appears to be ending the week stably.

The Swiss franc’s jump gave an extra boost this week since it is used as a financing currency and often changed to dollars before being exchanged for high-yields – meaning that dollars are sold when trade turns.

The dollar was stable on Friday, and apart from rising on the yen, it rose around 0.3% to 1.0518 dollars on the euro and rose around 0.5% to 0.7012 dollars per Aussie.

“The road to least resistance is lower stocks and higher dollars,” said Spectra Markets’ Brent Donnelly. “The Fed does not know where inflation is going, nor do we.”

In addition to the Fed and the Swiss central bank, the Bank of England announced a 25 basis basis rate hike this week. It was smaller than expected, but caused the gilts to sell and the pound to rise at risk that future rises would come thick and fast. read more

“If a central bank does not move aggressively, returns and risk will price more in the way of interest rate hikes on the road,” said NatWest Markets strategist John Briggs.

“Markets may be constantly adjusting to the outlook for higher global policy rates … as the global central bank’s policy is one way.”

Sterling rose 1.4% on Thursday and kept rising until Friday as it moves towards a steady week. Two-year gilts rose 18 basis points Thursday to 2.143%.

US labor and housing data weakened on Thursday, on the heels of disappointing retail sales figures, with concerns beating the dollar and helping the Treasury. read more

Benchmark 10-year government interest rates fell nearly 10 bp overnight, but faltered up to 3.2313% during the Asian morning. Yields rise when prices fall.

The fear of growth took the oil down on a short trip before prices stabilized. Brent oil futures were last at $ 119.70 a barrel. Gold held at $ 1,844 per ounce and bitcoin was kept under pressure at $ 20,700.

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Reporting by Tom Westbrook; Editing Lincoln Feast.

Our standards: Thomson Reuters Trust Principles.



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