Bloomberg News reports that Jerome Powell, the Federal Reserve Chair, indicated that higher for longer interest rates had been haunting the markets on Monday, causing the stocks and equity futures to sink. The two-year yields were also lifted to the levels last seen way back in 2007.
A global share index dropped to a one-month low as the US futures, and the European stocks plummeted. The tech companies led losses for the Asian equities, while progress in the delisting spat related to US-China is helping to cushion the Chinese stocks.
The Bloomberg Dollar Spot Index was found pushing towards the record hit in the previous month as the investors sought a haven from surging volatility. Commodity-linked currencies, the yen, offshore yuan, and the pound, were under much pressure.
Expectations related to a recession were underscored by the sell-off of bonds and deep inversion of the Treasury yield curve as there is a tightening of the monetary policy. The US two-year yield, sensitive to the expectations of the Fed policy, hit the 3.47% mark.
In his address at Fed’s Jackson Hole symposium last week, Powell indicated that it is quite likely that there will be the need for restrictive monetary policy for a while to curb high inflation and he warned against prematurely loosening the monetary conditions. He also cautioned about the potential for economic pain for business entities and households.
Bloomberg News reports that these comments sharply contrast with the bets for reductions in the cost of US borrowing in the next year as growth is slowing down. The main reason for the investors’ anger in the equity market is further undoing a bounce in the shares globally from the lows of the bear market in the middle of June. The other risks included are the energy crisis in Europe and the slowdown in China.
Bitcoin was found breaking below the $20,000 level, which some view as a marker that implies a deeper plunge in the investor sentiment. Gold was found to retreat, but on supply risks, oil made gains. In the meantime, the European Natural gas costs plummeted the most in April after Germany signaled that gas stores in the country are filling up rapidly compared to what was planned just before winter sets in.
Tech Retreat
The mood in the markets around the globe, in general, has been staying downbeat against a battling world economy, thereby combating the highest inflation in the last four decades, which is being further fanned by the disruptions that have resulted due to ongoing Ukraine and Russian war and Covid curbs in China.
