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Monday, September 26, 2022
Stocks & Shares

World shares slide, dollar extends gains on rate hike fears

World shares

U.S. Federal Reserve Chair Jerome Powell headlines a host of policy makers at Jackson Hole later in the week and the risks are that he will not meet investor hopes for a dovish pivot on policy

World shares slipped on Monday and the dollar extended its climb amid angst over global growth as most central banks keep raising rates, while a modest easing by China served only to highlight troubles in its property market.

U.S. Federal Reserve Chair Jerome Powell headlines a host of policy makers at Jackson Hole later in the week and the risks are that he will not meet investor hopes for a dovish pivot on policy.

We expect a reminder that more tightening is needed and there is still a lot of progress to be done on inflation, but no explicit commitment to a specific rate hike action for September, said Jan Nevruzi, an analyst at NatWest Markets. For markets, a bland delivery like that could be underwhelming.

The STOXX index of Europe’s 600 biggest stocks fell 0.97% on Monday with major regional markets in the red, as investors fretted about hawkish signals from European Central Bank policymakers.

The European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023, Bundesbank President Joachim Nagel told a German newspaper.

One exception to the tightening trend is China, where the central bank trimmed some key lending rates by between 5 and 15 basis points on Monday in a bid to support a slowing economy and a stressed housing sector.

Unease over China’s economy tipped the yuan to a 23-month low, while pressuring stocks across the region.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell a further 0.9%, though Chinese blue chips did manage to gain 0.7%.

South Korea’s KOSPI shed 1.2% while Japan’s Nikkei fell 0.5%, though it has drawn support from the recent sharp reversal in the yen.

U.S. markets looked set to follow the bearish tone, with S&P 500 futures down 1% and Nasdaq futures falling 1.35%.

The S&P 500 has repeatedly failed to clear its 200-day moving average around 4,320 and ended last week down 1.2%.

BofA’s latest survey of investors found most were still bearish, though 88% did expect lower inflation over time, the highest proportion since the financial crisis.

That helps explain this month’s rotation into equities, tech and discretionary, and out of defensives, said BofA strategist Michael Hartnett. Relative to history, investors are still long defensives and short cyclicals.

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