Global markets retreat to economic ‘hurricane’

Markets brace for another round of interest rate hikes from the US Federal Reserve and Bank of England next week

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The impending economic “hurricane” that JPMorgan boss Jamie Dimon warned of in June is starting to blow hard around the world and global markets are falling again.

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In a stark trade reading on Thursday night, global delivery firm FedEx withdrew the financial forecast it issued just three months ago, as it said the global demand slowdown had accelerated at the end of August and was about to worsen in the November quarter. Also lacking revenue and earnings forecasts, FedEx shares fell 16% after the bell.

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The World Bank added to the macroeconomic gloom and warned late Thursday that the global economy was heading into recession as central banks around the world simultaneously hiked interest rates to tackle persistent inflation.

Believing the world was in its biggest relapse from a post-recession recovery since 1970, he saw little to no support from major central banks and said they may need to raise interest rates. interest of two additional percentage points on top of the two point increase already seen compared to the 2021 average.

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As markets brace for another round of interest rate hikes from the US Federal Reserve and the Bank of England next week, stocks fell across the world on Friday. The MSCI global equity index was on the verge of a two-month low and set for its worst full week since June. Asian and European stock markets fell and US stock futures were in the red.

As two-year U.S. Treasury yields edged closer to 4% for the first time in 15 years, fed funds futures markets are now seeing policy rates as high as 4.5% by March and not seeing no return below 4% for the rest of 2023.

With global currency markets becoming increasingly choppy, the dollar has climbed again in the past 24 hours – topping 7.0 Chinese yuan for the first time in more than two years and hitting its highest level against the sterling since 1985.

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In a sign of darkening investor sentiment, markets dismissed signs of surprising resilience in Chinese retail sales and industrial production figures for August and instead focused on the fallout from the worsening of the real estate crisis.

Property investment fell 13.8% last month, the fastest pace since December 2021. New home prices fell 1.3% year-on-year in August, the fastest pace since August 2015 .

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With few signs that China will significantly ease zero-COVID soon, some analysts expect the economy to grow just 3% this year, which would be the slowest since 1976 – excluding the 2.2% expansion during the first COVID hit in 2020.

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Foreign investors continued to exit Chinese bonds last month and, with the yuan falling, China’s foreign exchange regulator on Friday urged companies not to speculate in the currency.

Sterling’s last slide was sharper. British retail sales fell much more than expected in August, another sign that the economy is slipping into recession.

Oil rose on Friday, but the year-over-year rise in the price of Brent fell below 20% for the first time since February 2021.

The International Energy Agency forecast near zero oil demand growth in the fourth quarter due to a weaker demand outlook for China, while the US Department of Energy said there was little likely to seek to fill the strategic petroleum reserve before fiscal year 2023.

© Thomson Reuters 2022

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