Dollar stands alone as rate hikes rattle stocks
SYDNEY — Asian stocks were set to start the final week of the quarter on the slide on Monday, while the dollar stood ascendant, as the prospect of high interest rates and poor growth shakes markets.
S&P 500 futures were flat after an initial wobble lower. Futures pointed to falls in Tokyo, Sydney and Hong Kong. The dollar made new highs on sterling, the euro and the Aussie in thin morning trade.
Last week, stocks and bonds crumbled after the United States and half a dozen other countries raised rates and projected pain ahead. Japan intervened in currency trade to support the yen. Investors lost confidence in Britain’s economic management.
The Nasdaq lost more than 5% for the second week running. The S&P 500 fell 4.8%.
“A weekend of reflection hasn’t led anybody to change their opinion,” said National Australia Bank’s head of currency strategy, Ray Attrill in Sydney. “It’s a case of shoot first and ask questions later, as far as UK assets are concerned.”
Gilts suffered their heaviest selling in three decades on Friday and on Monday the pound made a 37-year low at $1.0765 as investors reckon planned tax cuts will stretch government finances to the limit.
Sterling is down 11% this quarter.
Five-year gilt yields rose 94 basis points last week, by far the biggest weekly jump recorded in Refinitiv data stretching back to the mid 1980s. Treasuries tanked as well last week, with two-year yields up 35 bps to 4.2140% and benchmark 10-year yields up 25 bps to 3.6970%.
The euro wobbled to a two-decade low at $0.9660 as risks rise of war escalating in Ukraine, before steadying at $0.9696.
In Italy, a right-wing alliance led by Giorgia Meloni’s Brothers of Italy party was on course for a clear majority in the next parliament, as expected. Some took heart from a middling performance by eurosceptics The League.
“I expect a relatively little impact considering that the League, the party with the least pro-European stance, seems to have come out weak,” said Giuseppe Sersale, fund manager and strategist at Anthilia in Milan.
Other currencies were nursing losses. The Aussie touched $0.6510, its lowest since mid-2020. The yen hovered at 143.47 with worries over possible further intervention keeping it from losses. Japan intervened in the foreign exchange market on Thursday to buy yen for the first time since 1998.
Oil and gold steadied after drops against the rising dollar last week. Gold hit a more-than two-year low on Friday and bought $1,643 an ounce on Monday. Brent crude futures rose 71 cents to $86.86 a barrel.
(Additional reporting by Danilo Masoni in Milan; Editing by Kim Coghill and Sam Holmes)
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