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Stocks post biggest weekly loss since 2020 on interest rate concerns

On Friday, global stocks closed their biggest weekly decline since the March 2020 pandemic meltdown as investors worried that a tightening of anti-inflation central bank monetary policy could hurt economic growth.

The biggest rate hike by the US Federal Reserve since 1994, the first such Swiss move in 15 years, a fifth UK rate hike since December and a decision by the European Central Bank to support the indebted south have in turn shaken the markets.

The Bank of Japan was the only outlier in a week that silver prices rose globally, sticking to its strategy on Friday of pinning 10-year yields near zero.

Read also | In the aftermath of Fed rate hike, US stocks plunge amid recession fears

After steep early losses, global equities stabilized somewhat to end Friday’s session down just 0.12%. The weekly decline of 5.8% was the largest since the week of March 20, 2020.

Wall Street’s Dow Jones Industrial Average fell 0.13%, the S&P 500 added 0.22% and the Nasdaq Composite jumped 1.43%.

For the week, the S&P 500 fell 5.8%, also its biggest drop since the third week of 2020.

“Inflation, war and lockdowns in China have derailed the global recovery,” Bank of America economists said in a note to clients, adding that they saw a 40% chance of a US recession. United next year as the Fed continues to hike rates.

“We expect GDP growth to slow to near zero, inflation to stabilize around 3%, and the Fed to raise rates above 4%.”

The Fed said on Friday that its commitment to fighting inflation was “unconditional.” Fears that its rate hikes could trigger a recession have supported Treasury prices and slowed the rise in yields, which fall when prices rise. Ten-year Treasury yields fell to 3.22944% after hitting an 11-year high of 3.498% on Tuesday.

Southern European bond yields fell sharply after more detailed reports from ECB President Christine Lagarde on the central bank’s plans.

Watch | Biggest weekly drop in global stocks since March 2020 as tighter monetary rules worry investors

“The more aggressive line from central banks is adding headwinds to both economic growth and equities,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “The risks of a recession are growing, while achieving a soft landing for the US economy looks increasingly difficult.”

In Asia, MSCI’s broadest index of Asia-Pacific stocks outside Japan fell to a five-week low, led by selling in Australia. The Japanese Nikkei fell 1.8% and headed for a weekly decline of nearly 7%.

Japanese Yen Dives

Bonds and currencies were jittery after a rollercoaster week.

Overnight in Asia, the yen plummeted after the Bank of Japan stuck to its ultra-loose policy. The yen fell 2.2% on Friday night, supporting the US dollar, which rose 0.73% against a basket of major currencies.

The pound fell 1% in New York as investors focused on the spread between US and UK rates. The Bank of England opts for a more moderate approach than the Fed.

“If a central bank doesn’t act aggressively, yields and the price of risk will translate more into rate hikes,” said NatWest Markets strategist John Briggs.

Read also | Bank of Japan maintains monetary easing despite global rate hikes

“Markets may just be permanently adjusting to a prospect of higher global policy rates, as the policy momentum from global central banks is one-sided.”

Slower growth could lower fuel demand, so U.S. crude fell 6.42% to $110.04 a barrel and Brent to $113.30, down 5.43% on the daytime.

Gold was down 0.8% at $1,841.13 an ounce, weighed down by a stronger dollar.

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Post expires at 1:30pm on Tuesday June 28th, 2022