European stocks hit their lowest level in nearly two years on Friday (September 24), as dismal euro zone data pointed to an economic downturn, adding to fears of a hawkish move by the European Central Bank. The euro and sterling plummeted to fresh 20- and 37-year lows against the dollar, respectively. Wall Street’s major stock indexes ended sharply lower as nervous investors continued to adjust their positions to reflect fears that the Federal Reserve’s hawkish interest rate policy to curb inflation would tip the U.S. economy into recession. U.S. oil futures tumbled 5.7% to an eight-month low as fears of a global recession intensified. Gold prices fell more than 1.5% to their lowest since April 2020, driven by a sharp rebound in the dollar and Treasury yields.
European stocks: Recession fears mount, hits lowest in nearly two years
Earlier, British Chancellor of the Exchequer Quatten announced a series of tax cuts and measures aimed at promoting growth. Britain’s FTSE 100 closed down 2 percent, while a 3 percent slump in sterling capped losses in stocks. The pan-European STOXX 600 index fell 2.3%, bringing its weekly loss to 4.4%, its worst weekly performance since mid-June. The slump in business activity across the euro zone deepened this month as consumers reined in spending amid the cost of living crisis, and the economy may enter a recession, a survey showed.
Germany’s DAX fell 2.0% to its lowest level since November 2020. France’s CAC-40 index closed down 2.28 percent. “Given downside risks and high levels of uncertainty, everything is heading towards a contraction in euro area activity in the coming quarters,” said economists at ODDO BHF, adding that Germany may already be in recession by the third quarter .
All major sectors ended lower. Bank stocks fell 3.6%, with Credit Suisse tumbling 12.4% to a record low. Credit Suisse has started discussions with investors in recent weeks for a capital increase, the fourth time it has sought a capital increase from shareholders in about seven years, two people familiar with the situation said, as it tries to overhaul its investment bank.
(European and American stock markets)
U.S. stocks: Investors end sharply lower on interest rate hikes and recession worries
The Dow Jones Industrial Average managed to avoid being more than 20% below its record closing high of 36,799.64 set on Jan. 4, meaning the blue-chip index is not yet in a bear market by a widely used definition. The S&P 500 and Nasdaq are already in bear markets. For the week, the Nasdaq fell 5.03%, its second straight weekly loss of more than 5%, the S&P 500 fell 4.77% and the Dow Jones Industrial Average fell 4%.
After surging sharply over the past two years, Wall Street is battered in 2022 by concerns over a range of issues, including the conflict in Ukraine, Europe’s energy crisis, China‘s resurgence of the coronavirus, and tightening global financial conditions. This week, a number of central banks, including the United States, Britain, Sweden, Switzerland and Norway, announced interest rate hikes to fight inflation. But markets were caught off guard by the Fed’s signal, which expects high U.S. interest rates to continue into 2023.
David Russell, vice president of market intelligence at TradeStation Group, said: “There were some optimists who said inflation might be under control, but the Fed was actually telling them to sit down and shut up. The Fed is trying to rip off the Band-Aid, trying to get the job market out of the way. Curb inflation while it’s still strong.”
The dire outlook for a handful of companies added to concerns amid a seasonally weaker market. After withdrawing its profit forecast last week, FedEx Corp on Thursday outlined a cost-cutting plan of as much as $2.7 billion after falling demand hit first-quarter profit. FedEx fell 3.4% to its lowest close since June 30, 2020.
Third-quarter earnings growth for S&P 500 companies is expected to be 4.6 percent, compared with last week’s forecast of 5 percent, Refinitiv data showed. Goldman Sachs cut its target for the S&P 500 by about 16% at the end of 2022 to 3,600, as the Fed showed few signs of backing down from its aggressive rate-raising stance.
All 11 major sectors of the S&P 500 fell, led by energy stocks, which fell 6.8%. Oil and gas-related stocks tumbled as crude prices tumbled on demand concerns in a recessionary environment and a strong dollar. Oilfield service providers were hit particularly hard, with Helmerich and Payne Inc tumbling 11.2 percent and Schlumberger 8.4 percent lower. Halliburton fell 8.7% to its lowest close since Jan. 3. Rate-sensitive tech and growth stocks lower, Alphabet Inc
The CBOE Volatility Index, known as Wall Street’s fear gauge, rose to a three-month high of 29.92.
FOREX: Euro and sterling fall to 20- and 37-year lows on weak economic data and UK budget woes
The euro and sterling tumbled to fresh 20- and 37-year lows against the dollar, respectively, after surveys showed that business activity across the euro zone and Britain was slumping faster and the economy could enter a recession. Also weighing on the pound, the new Chancellor of the Exchequer Kwasi Kwarteng announced tax cuts and support measures for households and businesses, and the Government Debt Office laid out a plan to issue an additional £72 billion ($79.74 billion) this financial year to fund stimulus measures. plan.
(GBP daily chart)
Sterling hit a fresh 37-year low of $1.0840, its biggest weekly loss in two years. Sterling was the biggest loser against the dollar on the day, down 3.4% to $1.0874, also its biggest one-day percentage drop in two years. George Saravelos, global head of foreign exchange research at Deutsche Bank, wrote in a research note: “The market is sending a very strong signal that it is no longer willing to fund the UK’s external deficit at current UK real yields and exchange rates. The policy response needed for what happened is clear: the Bank of England has a massive between-meeting rate hike as early as next week to regain the market’s trust. And, a strong signal is needed that it is willing’ Do whatever it takes ‘to bring inflation down quickly and real yields into positive territory’.
In line with sterling, the euro fell 1.5% to $0.9689 after hitting its lowest level since October 2002 at $0.9669. Part of the trigger for the decline was that the S&P Global Eurozone Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, fell further in September.
The slump in German business activity deepened as higher energy costs hit Europe’s largest economy and companies saw a drop in new business. The euro posted its worst weekly performance since March 2020.
The yen fell 0.6% to 143.30 yen, but posted a weekly gain of 0.3%, its first weekly gain in more than a month, after Japanese authorities intervened to support the yen for the first time since 1998 on Thursday. . On Thursday, the Japanese government acted to stop the depreciation of the yen, carrying out the first time since 1998 to enter the market to support the yen, and the yen rebounded by more than 1%.
The U.S. dollar index, which measures the greenback against a basket of currencies including the euro, pound and yen, surged to 113.23, its highest level since May 2002 and surpassing a 20-year high set earlier this week. It was last up 1.6% at 112.96, its biggest weekly percentage gain since March 2020. “The dollar is truly a safe haven unlike any it has been in recent decades, because the war and its effects have not affected domestic goals,” said Juan Perez, head of trading at Monex USA in Washington.
Oil: Oil slumps to eight-month low on stronger dollar and recession fears
(U.S. oil hour chart)
The dollar hit a more than 20-year high and fears that rising interest rates would tip major economies into recession cut demand for oil. Oil prices tumbled about 5% to an eight-month low.
Brent crude futures fell $4.31, or 4.8%, to settle at $86.15 a barrel, down about 6% for the week. U.S. crude fell $4.75, or 5.7%, to settle at $78.74, down about 7% for the week. Both benchmark contracts fell for a fourth straight week, the first since December. Both are in technically oversold territory, with U.S. crude on track for its lowest settlement since Jan. 10 and Brent set for its lowest since Jan. 14. U.S. gasoline and diesel futures also fell more than 5 percent.
Oil slumped as global growth concerns went into panic mode as central banks pledged to fight inflation in unison, said Edward Moya, senior market analyst at data and analytics firm OANDA. It appears central banks are poised to continue aggressive rate hikes, which will dampen the outlook for economic activity and near-term crude oil demand.
Precious Metals: Gold falls to 2-1/2-year low as dollar extends gains and U.S. bond yields firm
Gold prices fell more than 1.5% on Friday to their lowest since April 2020, driven by a sharp rebound in the U.S. dollar and Treasury yields. Gold prices have fallen about 1.8% so far this week, on track for a second straight weekly loss.
(Spot Gold Hour Chart)
Edward Moya, senior analyst at OANDA, said: “We are seeing the dollar climbing here, which will keep gold vulnerable in the near term. The economy is clearly heading for a recession. The risk of a hard landing has increased, which has been Continuing to push money into the dollar is bad news for gold.”
The dollar hit a 20-year high, dampening demand for dollar-denominated gold, while the yield on the benchmark 10-year U.S. Treasury note jumped to its highest since April 2010. Other precious metals also fell sharply and posted weekly losses. Spot silver tumbled 4.1% to $18.84 an ounce, while platinum tumbled 4.8% to $857.46. Palladium fell 4.8% to $2,065.29.