- More pain for stocks; S&P500 down nearly 5% in Q3
- Dollar flat, sterling rises after turbulent week
- Government bond yields are rising and remain near the highs throughout the year
- Oil prices are falling
September 30 (Portal) – Wall Street and global equities slumped further on Friday, with Treasury yields and the dollar remaining near recent highs as higher-than-expected inflation capped an uncomfortable third quarter for world markets.
New personal consumption expenditure (PCE) price index data, which is being tracked by the US Federal Reserve as it considers further rate hikes, showed a 0.3% rise over the past month after falling 0.1% in July . Eurozone inflation also hit a record high of 10% in September, beating forecasts, flash inflation data showed.
Fed Vice President Lael Brainard said the Federal Reserve needed to hold on to higher interest rates for some time and guard against premature rate cuts as part of its effort to tame inflation.
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Quincy Krosby, chief global strategist for LPL Financial in Charlottesville, Virginia, said the new price index data had done “little to allay fears that the campaign to contain inflation is working as quickly as the market is hoping”.
All three major Wall Street indices ended down about 1.5% after a day of choppy trading.
It was the third consecutive weekly decline for the S&P 500 (.SPX) and the Dow Jones Industrial Average (.DJI), and all three indices, including the Nasdaq Composite (.IXIC), were down for the second straight month.
In the first nine months of 2022, Wall Street suffered three straight quarterly declines, the longest losing streak for the S&P and Nasdaq since the Great Recession and the longest losing streak for the Dow in seven years.
Friday’s losses cap a week of global market turmoil, in which a US dollar hit 20-year highs further weakened stock and currency markets, already reeling from recession fears.
Asian stocks outside Japan (.MIAPJ0000PUS) fell 0.4% on Friday, around 13% in September, their biggest monthly loss since the pandemic began in 2020.
European equities enjoyed some recovery, with the European STOXX 600 (.STOXX) up 1.3%, but they posted losses for a third straight quarter as they worried about the impact of central bank rate hikes on global growth, to counter inflation.
The MSCI World Equity Index (.MIWD00000PUS), which tracks stocks in 47 countries, fell 0.85% on Friday, down about 9.8% for the month and 7.3% for the quarter.
“We do not expect a sustained recovery in stocks until the Fed sees clear, multi-month evidence that inflation is slowing down,” Andy Tepper, managing director at BNY Mellon Wealth Management in Wynnewood, Pa., said in an email.
European government bond yields fell, while Germany’s 10-year yield was little changed at 2.118%, compared to Wednesday’s peak of 2.352%, an 11-year high.
US Treasury yields edged up. The 10-year Treasury note yield rose 6.9 basis points to 3.817%; the 30-year rose 7.3 basis points to 3.766% and the 2-year, which normally moves in step with interest rate expectations, rose 7.4 basis points to 4.244%.
Strategists at Goldman Sachs forecast the Fed would hike rates by 75 basis points in November, 50 basis points in December and 25 basis points in February to a peak rate of 4.5-4.75%, according to a note to clients released on Friday.
The Bank of England will not hike rates before its next scheduled monetary policy announcement on November 3, even though sterling has fallen sharply, but would make big moves in November and December, according to a Portal poll.
European Central Bank policymakers have also expressed more support for a large rate hike.
The British pound, which was pushed to all-time lows earlier this week on a combination of dollar strength and the government’s plans for leveraged tax cuts, rose about 0.35% but still suffered its worst quarter against the dollar since 2008.
The dollar index hit a 20-year high on Wednesday. The dollar index is up about 17% this year.
RAW MATERIALS
Oil prices fell in the choppy trade but posted their first weekly gain in five on Friday, underpinned by the possibility that OPEC+ will agree to cut crude production when it meets on Oct. 5. Brent crude futures fell 0.6% to trade at $87.96 a barrel and US crude fell 2.1% to $79.49.
Gold was little changed, ending its worst quarter since March of last year, weighed down by fears of ever-higher interest rates.
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Reporting by Lawrence Delevingne in Boston and Elizabeth Howcroft in London; Edited by Mark Potter, Angus MacSwan, William Maclean, Alex Richardson, Leslie Adler and Marguerita Choy
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