U.S. stock futures tumbled, the dollar rose and government yields again hit their highest levels in more than a decade after investors were rattled by fresh signs of slowing global growth and British plans for big, debt-financed tax cuts.
Futures tied to the S&P 500, the Dow Industrials and the tech-heavy Nasdaq 100 fell between 1.3% and 1.5% before the opening bell on Friday, putting the three indexes on track for their fourth straight day of declines.
US Treasury yields shot higher as investors braced for more policy tightening. The 10-year US Treasury yield rose to 3.775% from 3.705% a day earlier, marking the highest close since February 2011.
Business surveys showed that economic activity in Europe fell sharply in September, underscoring how growth outside the US has been thrown off course by rising inflation, an energy crisis and now Russia’s nuclear war threats.
The pan-European Stoxx Europe 600 fell 2.5% and Britain’s FTSE 100 fell 2.2%. The DAX fell 2.6%, putting Germany’s benchmark stock index on course for its lowest close since late 2020.
Investors fear that efforts to contain rising inflation will weigh on growth. This week, a number of central banks, including policymakers in the US, Switzerland and South Africa, raised borrowing costs. The global commitment to tighten policy has further eroded hopes among investors of a soft landing or only a modest hit to growth rather than a full-blown recession.
“All central banks are singing from the same hymn sheet: they are trying to get on top of inflation no matter what,” said Antoine Bouvet, a senior rates strategist at ING. “The Fed set the tone very clearly … they will continue regardless of the financial pain inflicted on the economy.”
European government bonds were also swept by selling, led by Britain, after the government of new Prime Minister Liz Truss unveiled a big package of tax cuts that will require 72.4 billion pounds, or about $81.5 billion, of new borrowing. The move is an attempt to jump-start Britain’s sluggish economy with a package that has been compared to Reaganomics, despite inflation nearing 10%.
The yield on the UK 10-year Treasury rose to 3.774% from 3.502% just before the announcement. Dividends increase as prices fall.
The WSJ Dollar Index, which measures the U.S. currency against a basket of peers, rose 0.8% as the euro and British pound fell to fresh multi-decade lows. The Japanese yen fell 0.3% against the US dollar, resuming its selloff a day after Japan directly intervened in the foreign exchange market, buying yen and selling dollars for the first time in 24 years.
On the commodity markets, oil prices came under pressure. Brent crude, the global benchmark, fell 3% to $86.81. Investors fear that a slowing economy will weigh on demand for crude oil.
Shares in Asia also fell. Hong Kong’s Hang Seng Index lost 1.2%, while the Shanghai Composite Index fell 0.7% in mainland China. Japanese markets were closed for a holiday.
Email Chelsey Dulaney at firstname.lastname@example.org
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8