Markets are bracing for another round of interest rate rises from the U.S. Federal Reserve and the Bank of England next week
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A trader working at the New York Stock Exchange. Photo by Andrew Kelly/Reuters files The approaching economic ‘hurricane’ that JPMorgan boss Jamie Dimon warned about in June is starting to blow hard around the world and global markets are hunkering down again.
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In a stark business readout late Thursday, global delivery firm FedEx withdrew the financial forecast it issued just three months ago because it said the global demand slowdown had accelerated at the end of August and was on pace to worsen in the November quarter. Missing revenue and profit forecasts too, FedEx shares dropped 16 per cent after the bell.
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The World Bank added to the macro gloom and warned late Thursday that the global economy was headed toward recession as central banks across the world simultaneously hike interest rates to combat persistent inflation.
Estimating that the world was in its sharpest relapse from a post-recession recovery since 1970, it saw little or no support from major central banks and said they may need to raise interest rates by a further two percentage points on top of the two-point increase already seen over the 2021 average.
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With markets bracing for another round of interest rate rises from the U.S. Federal Reserve and the Bank of England next week, stocks tumbled across the world on Friday. MSCI’s index of world stocks was on the verge of its lowest for two months and set for its worst full week since June. Asia and European bourses tumbled and U.S. stock futures were in the red.
As two-year U.S. Treasury yields closed in on four per cent for the first time in 15 years, Fed funds futures markets now see policy rates as high as 4.5 per cent by March and don’t see a return back below four per cent for the rest of 2023.
With world currency markets getting increasingly restive as a result, the dollar zoomed higher again over the past 24 hours — topping 7.0 Chinese yuan for the first time in more than two years and hit its highest level against the British pound since 1985.
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In a sign of the darkening investor mood, markets dismissed signs of surprising resilience in Chinese retail sales and industrial output numbers for August and focused instead on the fallout from the deepening property slump.
Property investment last month fell 13.8 per cent, the fastest pace since December 2021. New home prices fell 1.3 per cent year-on-year in August, the fastest since August 2015.
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Article content Foreign investors continued to exit Chinese bonds last month and, with the yuan falling, China’s foreign exchange regulator on Friday urged companies not to speculate on the currency.
Sterling’s latest slide was more clearcut. British retail sales fell much more than expected in August, in another sign that the economy is sliding into recession.
Oil ticked higher on Friday but the year-on-year rise in the price of Brent crude has moderated below 20 per cent for the first time since February 2021.
The International Energy Agency forecast almost zero growth in oil demand in the fourth quarter due to a weaker demand outlook for China, while the U.S. Department of Energy said it was unlikely to seek to refill the Strategic Petroleum Reserve until after fiscal 2023.
© Thomson Reuters 2022