June 28, 2022

Stocks Eye Steepest Fall Since 2020 with Central Banks Roiling Markets

World stocks were on their way to record their worst week since March 2020, when the markets had suffered a meltdown brought on by the global COVID-19 pandemic. Investors were concerned about the future economic growth and the possibility on recession, due to the tightening of monetary policies by most global central banks in an effort to bring down inflation.

Central Banks’ Movements

The US Federal Reserve made the biggest ever rate hike seen in the country since 1994, the Bank of England hiked its interest rate by 25 basis points for the fifth time since December and the European Central Bank also announced the end of stimulus and tightening of monetary policy from next month. To top it off, the Swiss National Bank (SNB) also delivered a surprise hike of 50 basis points in their interest rate and all of these contributed to roiling markets.

The only outlier for the week was the Bank of Japan, which stuck to its strategy of stimulus and low interest rate and 10-year bond yields near zero, while money prices went up all over the world. Asset classes had recorded rather punchy moves throughout the week, but world stocks were trading flat on Friday. This drove the weekly losses up by 5.5% and put the index on the path of its biggest weekly drop recorded in more than two years.

Asian Markets Record Volatility

In Asian trading hours, the US dollar recorded a gain of 1.9% against the Japanese yen, which pushed it to 134.70. Meanwhile, there was a sharp decline in the MSCI index of Asia-Pacific shares excluding Japan, which was dragged down to a low of five weeks. There was also a 1.8% drop in Japan’s Nikkei, which meant that it was going to close the week after a drop of 7%.

There was a 0.8% rise in the S&P 500 futures and a 1.2% gain in the Nasdaq 100 futures, even though both of them were still down for the week. Market analysts said that the aggressive stance of central banks will only mean more trouble for equities and economic growth. There is a rise in the recession risk and it is becoming increasingly challenging for the US economy to achieve a soft landing.

Bank of America analysts disclosed data that showed 88% of the indexes that were tracked are down below their 50 and 200 day moving averages. Currencies and bonds have had a rollercoaster week and remained jittery.

On Thursday, the housing and labor data in the US was soft and followed after disappointing retail sales numbers, with the concerns boosting Treasuries, but bringing down the dollar. The greenback had receded gains after hitting a 20-year high, but it did not decline far and was once more up by 0.5%. This put it on the path of closing the week at a steady value against a basket of its peers. There was a 1.4% increase in Sterling on Thursday, but had come down by 0.5%.

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