Sell-offs in global markets accelerated today as a result of the unanticipated US inflation report, which added pressure on the US Federal Reserve to expedite its monetary tightening measures. Treasury yields in the US were at their highest in years. Meanwhile, the dollar, which is deemed a safe haven for value, surged against major currencies to its highest level in 20 years, driven by concerns of a global economic slowdown and forecasts of a significant interest rate hike.
S&P 500 futures sank 2.5 percent and Nasdaq 100 contracts slid 3.1 percent.
The S&P 500 is flirting with a bear market following Friday’s unexpected release of the consumer price that triggered over $1 trillion in sell-off trading. Also, the Stoxx 600 index traded at its lowest level since early March, according to Reuters.
In addition, ten-year US Treasury yields hit 3.24 percent, the highest level since October 2018.
The sale of European government bonds accelerated as the yield on German two-year government debt crossed 1 percent for the first time in over a decade.
Inversions of the Treasury yield curve signal fears that sharp Fed rate hikes may result in a severe drop in the stock market.
In the same context, stocks in Asia have also fallen, while bond yields have risen. Asian stock markets lost today around 2.7 percent of their value. Technology stocks in Hong Kong lost about 4 percent, casting a pall over the larger Hang Seng Index (HSI). Similarly, Japanese stocks suffered significant losses.
Dollar vs Yen
In the meantime, the dollar surged to its highest level in 20 years, while the yen fell to its lowest level versus the dollar in 24 years.
The dollar index, which measures the currency’s value against six major currencies, climbed 0.5 percent to 104.75 on the day, close to a 30-year high of 105.01 set in May. It increased 0.2 percent to 104.63 in recent trading.
“The Fed will not be able to pause current tightening, let alone start easing. There will be some shocks if all global central banks deliver what they are valued – implied in stock movement,” James Athey, investment director at abrdn, told Bloomberg. There will be some significant negative shocks to economies, he added.
Markets predict monetary policy tightening
Traders predict that the Federal Reserve will hike rates by 175 basis points by September. If that happens, it will be the first time the Fed has taken such drastic action since 1994.