Global stock markets kicked off September on a downbeat note, extending their declines into a fifth day as weak Chinese data and new Covid-19 lockdowns in the world’s second-largest economy weighed on sentiment.
A FTSE gauge of worldwide shares lost 0.6 per cent on Thursday, having closed the previous session down by the same margin. Europe’s regional Stoxx 600 gauge fell 0.8 per cent in early dealings, while futures contracts tracking Wall Street’s broad S&P 500 slipped 0.7 per cent after the gauge fell 0.8 per cent on Wednesday.
In Asian markets, Hong Kong’s Hang Seng lost 2 per cent and mainland China’s CSI 300 fell 0.8 per cent after Chinese authorities moved to lock down the south-western megacity of Chengdu as they stuck to the country’s zero-Covid policy.
A survey of manufacturers in China also came in 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 figure below 50 signals contraction.
Grace Ng, a JPMorgan economist, said the report “raises concerns of slowing external demand”.
Those equity market declines came after hawkish rhetoric from the US Federal Reserve put the brakes on this year’s summer rally. Fed chair Jay Powell said last week at the Jackson Hole Economic Symposium that the central bank would “keep at it until the job is done” on inflation.
Rate-setters in major economies around the world are pushing ahead with monetary policy tightening in an effort to curb rapid price growth, even as higher borrowing costs threaten to exacerbate a protracted slowdown.
German and UK bond markets had sold off on Wednesday on expectations of such tightening, compounded by data that showed eurozone inflation hit 9.1 per cent in August — up from 8.9 per cent in July and higher than economists’ forecasts of 9 per cent. The European Central Bank is due to announce an interest rate decision next week; it raised borrowing costs earlier in the summer for the first time in more than a decade by an unexpectedly large 0.5 percentage points to zero.
Markets are now pricing in the possibility of an even bigger 0.75 percentage point increase at the ECB’s September meeting.
Investors have also lifted their estimates of how far the Fed will increase borrowing costs, with pricing pointing to a rate of almost 3.9 per cent by February 2023 — up from expectations at the start of August of less than 3.3 per cent. The central bank’s current target range stands at 2.25 to 2.50 per cent, after it raised rates by 0.75 percentage points in July for the second time in a row.
US government debt came under pressure on Thursday in a sign of persistent worries over rate rises, with the yield on the 10-year Treasury note adding 0.06 percentage points to 3.2 per cent. The yield on the two-year note, which closely tracks interest rate expectations, added as much as 0.05 percentage points to 3.5 per cent, hitting a new 15-year high. Bond yields rise as their prices fall.
