Shares Fall And Yields Rise As Data Increases Concerns

On Tuesday, there was a decline in global stocks for the third session in a row, as investors were worried about the continued rate hikes in Europe and the United States.

This was after data indicated that inflation was still persistent in both regions, even though central banks have tightened their policies.

The data

Data on Tuesday showed that July had seen a rise in US job openings, which pushed up 2-year Treasury yields to a high they have not reached since 2007.

The data showed that labor demand was still strong, which bolstered the stance of the US Fed to continue with its aggressive rate hiking path.

On Tuesday, President of the New York Fed, John Williams discouraged speculation about the Fed cutting rates in 2023 for supporting economic growth.

He said that they needed to hike the interest rate to 3.5% and would not cut rates in the next year. Data also showed that inflation in Germany in August had climbed to its highest level in about 50 years.

This also strengthened the case for a large interest rate hike to come from the European Central Bank in its policy meeting in September.

Market sentiment was already quite fragile and reports of Taiwan firing warnings shot at a Chinese drone for the first time only worsened it.

Markets fall

After recording gains early in the session, the S&P 500 fell 1.1% to its lowest value in about a month. There was a 0.96% drop in the Dow Jones Industrial Average and a 1.12% fall in the Nasdaq Composite.

Market analysts said that equity markets were feeling the impact of expectations about the central bank keeping its foot on the accelerator as far as rate hikes are concerned.

After recording gains earlier, the continent-wide STOXX 600 index also dropped 0.7% for the day, while a 0.74% fall was seen in the MSCI’s global equity index.

Bond yields

The 2-year US Treasury yields rose to their highest value of 3.4970% which was last seen in 2007 and significantly higher than their 10-year counterparts.

The latter stood at 3.1530%, which was the first after June. There was also a rise in 10-year German government bond yields to 1.510%, which brought them near a high of two months of 1.548% seen on Monday.

On Monday, a warning was issued by Isabel Schnabel of the ECB regarding the soaring inflation and this pushed up bond yields by almost 12 to 20 basis points.

Investors are concerned that the battle of policymakers against inflation with higher interest rates could drive the economy into recession.

Market analysts said that a recession has become inevitable for the European economy and the only thing to wonder about is its severity and how long it will last.

Last week, Jerome Powell of the Fed and speakers of the ECB talked about taking forceful action for curbing inflation.

This had driven traders to hike up interest rate expectations in the near term, which resulted in a sell-off in equities and bonds.

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