Wall Street and European stock markets have fallen sharply on fears of rising interest rates, and the stagnation has supported an economic recovery and a statement of simple monetary policy that has supported asset prices for months.
The blue-chip S&P 500 stock index fell about 1.7 percent and the technology-heavy Nasdaq Composite fell 2.5 percent. Europe’s stocks 600 index fell 1.9 percent.
The yield on the 10-year U.S. Treasury note, which serves as a cost-effectiveness measure for companies and households worldwide, added 0.05 percentage points to 1.539 percent, which has not been seen since June.
Government bond yields, which go in the opposite direction to prices, climbed last week in anticipation of rising interest rates from the United States and the UK Federal Reserve, which signaled a move away from the epidemic-era financial stimulus in the face of persistently high inflation.
The 10-year Treasury yield, which was about 1.3 percent traded a week ago, is also used by investors to determine the public company’s future earnings, cash flows and dividend pricing.
Rebecca Chaseworth, senior equity strategist at SPDR ETF Trading at State Street Global Advisors, said, “Equities look less attractive when bond rates rise, and especially those whose dividend yields are very low, such as in the technology sector.”
Last week, the Federal Reserve said it could easily move forward with its $ 120bn-a-month bond purchase cut. The world’s most influential central bank has also revealed that half of its monetary policymakers expect interest rates to rise for the first time since the epidemic in 2022.
Sami Char, chief economist at Lombard Odier, the chief economist at the Swiss bank, said the main market statement was one of stagnation, citing “slowdown in economic expansion due to high inflation and rising energy prices” and “growth concerns from China”.
A day later the Bank of England warned that inflation in the UK could rise above per cent by next year, raising expectations that it is moving closer to raising interest rates from record lows.
The UK’s 10-year gilt yield rose 0.05 percentage points on Tuesday, breaking the 1 per cent mark for the first time since March 2020. Sterling bought about 2 1.354, down about 1.2 percent from the dollar.
Testifying to Congress on Tuesday, Fed Chair J. Powell said the supply constraints, which have kept the U.S. inflation headline above five percent for a sufficient three months, are “bigger and longer than expected.”
Hours after the international oil benchmark, Brent Crude, crossed the 80 barrel for the first time since October 2018, Powell made the remarks, saying hurricanes have reduced U.S. production and pushed up natural gas prices.
The US Conference Board’s Consumer Confidence Index, released on Tuesday, also hit a seven-month low in September. The study authors noted concerns about the highly contagious delta form of coronavirus for drops.
Investors are still waiting to see if the Beijing authorities will be able to control any spillover from the debt crisis at Evergrande, a major Chinese homebuilder that failed to pay interest on bonds to foreign investors last week.
Four added that if central banks raise rates next year with high-prone economic growth, stocks of higher dividend yields, such as in the banking and energy sectors, could perform better.