LONDON, Dec 16 (Reuters) – Global shares remained near one-month lows and government bond markets came under renewed selling pressure on Friday, a day after central banks raised interest rates and signaled that inflation the fight to mitigate is over. not over yet.
Interest rates rose in the euro zone, Britain, Switzerland, Denmark, Norway, Mexico and Taiwan on Thursday, following a U.S. rate hike a day earlier, and central bankers vowed to keep raising rates to keep prices down.
This week’s hawkish message from the likes of the European Central Bank and the Federal Reserve sharply ended optimism that the top is almost here.
European stock markets opened lower ( .STOXX ) and U.S. stock futures were in the red, pointing to more pain on Wall Street, where major indexes suffered their biggest daily percentage declines in weeks on Thursday.
In Asia, Japan’s Nikkei closed at its lowest level in more than a month (.N225) and MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) posted its worst week in two months.
As a result, MSCI’s global stock index (.MIWD00000PUS) fell to its lowest level in nearly a month.
“Central banks hit markets that were recovering, anticipating that policymakers would address inflation and interest rates,” said Sunil Krishnan, head of multi-assets at Aviva Investors.
The ECB provided a 50 bps increase, as did the Fed. Both opted for a smaller increase this time, but noted that more increases are expected.
His dovish message fueled a second day of sharp selling in European bond markets, where the 10-year bond yield rose as much as 14 bps.
The yield on two-year interest-sensitive German bonds rose to 2.5%, the highest level since 2008.
The closely watched gap between Italian and German bond yields widened to 215 bps, while Germany’s yield curve pushed deeper into inverted territory in a sign investors were positioning for a sharp slowdown in growth.
British bond yields also rose and US Treasury yields rose in London trade.
“We now expect the ECB to hike to 3.25% (including 50 bps in March) and the Fed to 5.25%, arguing for continued pressure on yields and spreads,” Commerzbank said. Christoph Rieger, Head of Interest Rates and Credit Research.
In China, where markets are reeling over an uncertain reopening, relief from an apparent resolution to a long-running accounting access dispute with the US was not enough to boost sentiment.
The first picture of business activity in Europe also gave some positive signs.
Germany’s decline in economic activity eased for a second straight month in December as S&P’s Global flash composite purchasing managers’ index rose to 48.9 in December from 46.3 in November.
Meanwhile, Japan’s manufacturing activity shrank at the fastest pace in more than two years in December, while US retail sales fell more than expected in November.
The prospect of further monetary tightening globally made investors nervous about long-term growth.
In currency markets, the dollar slipped, giving back some strong gains from the previous session.
The dollar index, which measures the currency against six major peers, fell to 104.45. That followed an overnight gain of 0.85%, the biggest since late September.
The euro was 0.25% firmer at $1.0655, while the dollar was almost 0.7% lower at 136.85 yen.
Gold was steady at $1,776 an ounce. Oil gave back some recent gains, with Brent crude futures down 1.3% at $80.22 a barrel.
Reporting by Dhara Ranasinghe; Additional reporting by Naomi Rovnik in London and Tom Westbrook in Singapore; Editing: Arun Koiyur
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