Wall Street plummets following negative macro ‘tsunami’

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  • US stocks fall
  • European and Asian stocks also fall
  • VIX Fear Gauge jumps 6%
  • Strong dollar after the fall of the pound sterling
  • Gold and Oil down in choppy trade

Sep 26 (Reuters) – U.S. stocks and oil prices fell in choppy trading on Monday, even as dollar and Treasury yields rose, as Wall Street digested a series of what it read as negative macroeconomic news.

With markets already jittery over signals from the central bank for further interest rate hikes, the UK government’s fiscal plans released on Friday continued to rattle markets. The pound fell to a record low on Monday and a further sell-off in UK gilts pushed eurozone bond yields higher.

U.S. stocks were mixed at the start of the week, but quickly fell around noon on Monday. The Dow Jones Industrial Average (.DJI) and S&P 500 (.SPX) both fell nearly 1%, while the Nasdaq Composite (.IXIC) fell around 0.2%.

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Global equities also fell as concerns over high interest rates continued to put pressure on the financial system, although reaction to the election result in Italy, where a right-wing alliance won a sharp majority, was moderate.

Europe’s STOXX 600 index (.STOXX) slid to a new low since December 2020, last falling 0.4% on the day. Asian stocks (.MIAPJ0000PUS) fell 1.7%.

“I think everyone felt like they were swimming in a tsunami of news flow last week after one of the most incredible macro weeks in recent memory,” Deutsche Bank strategist Jim Reid wrote on Monday. , in a customer note.

This flurry of mostly negative news pushed Wall Street’s so-called fear index, the VIX (.VIX), up around 6% on the day – approaching levels not seen since October 2020.

The pound slipped to an all-time low against the dollar, last trading around 1.4%. The Bank of England said on Monday it would not hesitate to change interest rates and was watching markets “very closely” after the pound fell.

The declines in the pound were partly due to the strength of the dollar, which hit a new 20-year high at 114.58 in early trade. It was last at $114.06, up about 0.8%.

“The Bank of England is in a very difficult position where if it doesn’t react it risks another collapse of the pound and things get very complicated,” said Mike Riddell, Senior Portfolio Manager, Allianz Global Investors. “If they react, a developed market rate hike to defend the currency looks like an emerging market. So they’re damned if they do, damned if they don’t.

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European government bonds were also affected. Yields on five-year UK government bonds jumped 50 basis points to their highest level since October 2008, pushing eurozone bond yields higher. Germany’s 10-year government bond yield hit its highest since December 2011 at 2.132%, DE10YT=RR and Italy’s benchmark bond yields hit their highest since 2013.

In the United States, Treasury yields also hit new highs on Monday, as concerns persisted that central banks around the world will continue to tighten monetary policy to rein in stubbornly high inflation.

Yields on two-year Treasury bills, which tend to be more sensitive to changes in interest rates, hit a nearly 15-year high of 4.214%, and yields on the benchmark 10-year note jumped at 3.859%.

Oil prices hit nine-month lows in choppy trading on Monday, under pressure from a strengthening dollar as market participants awaited details of new sanctions on Russia.

U.S. crude fell 2.15% to $77.05 a barrel and Brent last traded at $84.30, down 2.15% on the day.

Spot gold fell 0.8% to $1,630.41 an ounce, after hitting its lowest price since April 2020 at $1,626.41.

“There was economic logic at play, as central banks raised rates to drive monetary policy into restrictive territory, dip below trend growth for a while – a polite way of saying a recession – and then you get lower inflation,” Samy Chaar said. , chief economist at Lombard Odier.

“The question is whether the financial world can get through this streak. It feels like we’re reaching the limit of that, things are starting to break, for example what we’re seeing with the pound sterling.”

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Reporting by Lawrence Delevingne in Boston, Alun John in London and Tom Westbrook in Sydney; Additional reporting by Harry Robertson in London and Danilo Masoni in Milan; Editing by Toby Chopra, Marguerita Choy and Josie Kao

Our standards: The Thomson Reuters Trust Principles.

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