A rout in global risk assets deepened as the UK government’s plan to boost its economy with tax cuts and spending fueled concerns about tighter monetary policy and slowing growth.
(Bloomberg) — A rout in global risk assets deepened as the UK government’s plan to boost its economy with tax cuts and spending fueled concerns about tighter monetary policy and slowing growth.
Gilts plunged and the pound fell to a fresh 37-year low as markets priced in a more aggressive pace of tightening to offset fiscal stimulus. A dollar gauge rose to yet another record and 10-year Treasury yields climbed to the highest in more than a decade.
US equity futures dropped at least 1%, with major internet and technology stocks solidly lower in premarket trading. Europe’s Stoxx 600 Index tumbled to the lowest since December 2020 and was poised to enter a bear market as mining and energy shares fell alongside gold and oil. Credit Suisse Group AG slumped to a record amid strategy concerns.
Goldman Sachs Group Inc. slashed its year-end target for the S&P 500 Index to 3,600 from 4,300, citing a higher interest-rate path from the Federal Reserve, and strategists gave up on a year-end rally for European stocks as private-sector activity in the region continued to contract.
“It appears that traders and investors are going to throw in the towel on this week in what feels like ‘the sky is falling’ type of event,” Kenny Polcari, chief strategist at SlateStone Wealth, wrote in a note. “Once everyone stops saying that they ‘think a recession is coming’ and accepts the fact that it is here already – then the psyche will change.”
The yield on five-year UK bonds was set for the biggest increase on record in Bloomberg data going back 30 years, after Chancellor of the Exchequer Kwasi Kwarteng outlined the government’s most radical package of tax cuts since 1972 and the Debt Management Office increased its gilt sales plan more than expected.
The pound plunged to the lowest level since 1985 and traders ramped up bets that the Bank of England will raise rates by one percentage point at its November policy meeting. Investors and economists expressed concern the package will drive the Treasury’s debt to unaffordable levels and fan inflation.
“The markets will do what they will,” Kwarteng said, when challenged in parliament about the mayhem in markets.
The European Central Bank will also forge ahead with increases in borrowing costs, according to Governing Council member Martins Kazaks, even as recession risks rise across the continent.
While the dollar continued its relentless advance amid forecasts for a further 1.25 percentage points of tightening before year-end, a surprise cut by Turkey’s central bank sent the lira to a fresh all-time low and its longest weekly losing streak in 23 years.
Meanwhile, the yen fell as traders braced for more action after Japan intervened to prop up the ailing currency for the first time since 1998.
Investors are flocking to cash and shunning almost every other asset class as they turn the most pessimistic since the global financial crisis, according to Bank of America Corp. strategists.
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Here are some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 1.2% as of 8:30 a.m. New York time
- Futures on the Nasdaq 100 fell 1.2%
- Futures on the Dow Jones Industrial Average fell 1.1%
- The Stoxx Europe 600 fell 2%
- The MSCI World index fell 1.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.7%
- The euro fell 0.7% to $0.9765
- The British pound fell 1.6% to $1.1076
- The Japanese yen fell 0.4% to 142.91 per dollar
Bonds
- The yield on 10-year Treasuries advanced four basis points to 3.75%
- Germany’s 10-year yield advanced seven basis points to 2.03%
- Britain’s 10-year yield advanced 27 basis points to 3.77%
Commodities
- West Texas Intermediate crude fell 3.3% to $80.77 a barrel
- Gold futures fell 1.5% to $1,656.60 an ouncebarrel
- Gold futures fell 1.4% to $1,657.40 an ounce
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