Global stocks extend falls into new month on darkening outlook

Global equity markets started September on a gloomy note and extended their declines to a fifth day as weak Chinese data and new Covid-19 lockdowns in the world’s second largest economy weighed on sentiment.

An FTSE gauge of global equities lost 0.7 percent on Thursday, after falling 0.6 percent in the previous session. Europe’s regional Stoxx 600-meter fell 1.7 percent, while futures contracts tracking Wall Street’s broad S&P 500 fell 0.8 percent.

In Asian markets, the Hang Seng in Hong Kong lost 1.8 percent and the CSI 300 in mainland China by 0.9 percent after Chinese authorities wanted to shut down the southwestern megacity of Chengdu for adhering to the country’s zero-covid policy. .

A survey of manufacturers in China also came out worse than expected, with the Caixin manufacturing purchasing managers index registering a reading of 49.5 for August – down from 50.4 in July and below expectations of 50. 2. Any number below 50 indicates contraction.

Grace Ng, a JPMorgan economist, said the report “raises concern about slowing external demand.”

Hours later, a separate S&P Global manufacturing index signaled a deteriorating picture in the euro-zone, standing as high as 49.6 from 49.7 in July.

Thursday’s stock market declines came after the US Federal Reserve’s aggressive rhetoric put a brake on this year’s summer rally. Fed Chair Jay Powell said at the Jackson Hole Economic Symposium last week that the central bank “as long as the work is done” on inflation.

Rate-setters in major economies around the world continue to tighten monetary policy in an effort to curb rapid price growth, even as higher borrowing costs threaten to exacerbate a prolonged slowdown.

German and UK bond prices fell further after falling Wednesday on expectations of such a tightening, exacerbated by data showing euro-zone inflation reached 9.1 percent in August — up from 8.9 percent in July and above. than economists’ forecasts of 9 percent. The European Central Bank will announce an interest rate decision next week; it raised borrowing costs by an unexpectedly large 0.5 percentage point to zero for the first time in more than a decade earlier in the summer.

Markets are now estimating the possibility of an even bigger gain of 0.75 percentage point at the ECB meeting in September.

Investors have also raised their estimates of how far the Fed will raise borrowing costs, with prices pointing to a rate of nearly 3.9 percent by February 2023 — up from expectations at the beginning of August of less than $3. 3 percent. The current target of the central bank is between 2.25 and 2.50 percent, after it raised interest rates by 0.75 percentage point for the second time in July.

US government debt came under pressure on Thursday in a sign of continued concerns about interest rate hikes, with the yield on 10-year Treasuries rising 0.07 percentage points to 3.21 percent. The yield on the two-year note, which closely follows interest rate expectations, added a whopping 0.05 percentage point to 3.5 percent, reaching a new high in 15 years. Bond yields rise when their prices fall.

Anticipation of tighter monetary policy and a protracted recession have already fueled fears about corporate financial health, with the yield gap between high-yield US corporate bonds and government bonds widening in recent weeks. The respective spread, which reflects the demand from premium investors to take more risk, has risen from just over 4.2 percentage points in mid-August to 5 percentage points at the end of Wednesday, according to an Ice Data Services index.