Global stocks extend slide into new month amid darkening outlook

Global stock markets started September on a pessimistic note, extending their slide to a fifth day, as weak Chinese data and fresh Covid-19 lockdowns in the world’s second-largest economy weighed on sentiment.

A FTSE gauge of global stocks lost 1.3% on Thursday, after ending the previous session down 0.6%. Wall Street’s broad gauge S&P 500 fell 0.7% at the New York opening bell, while the tech-heavy Nasdaq Composite fell 1%. The European regional gauge Stoxx 600 fell 1.6%.

In Asian markets, Hong Kong’s Hang Seng lost 1.8% and mainland China’s CSI 300 fell 0.9% after Chinese authorities moved to lock down the southwestern megacity of Chengdu while that they were sticking to the country’s zero Covid policy.

A survey of manufacturers in China was also worse than expected, with the Caixin Manufacturing Purchasing Managers’ Index registering a reading of 49.5 for August – down from 50.4 in July and below expectations of 50.2. Any number below 50 signals a contraction.

Grace Ng, an economist at JPMorgan, said the report raised “concerns about slowing external demand.”

Later Thursday, a separate S&P Global manufacturing index hinted at a deteriorating situation in the eurozone, giving a reading of 49.6 from 49.7 in July.

Thursday’s stock market declines came after hawkish rhetoric from the US Federal Reserve dampened this year’s summer rally. Fed Chairman Jay Powell said last week at the Jackson Hole economic symposium that the central bank would “keep going until the job is done” on inflation.

Rate setters in the world’s major economies continue to tighten monetary policy in an effort to rein in rapid price growth, even as rising borrowing costs threaten to exacerbate a prolonged downturn.

Jeremy Grantham, co-founder of asset manager GMO, announced an “epic finale” to the current “superbubble” on Wednesday, saying the current scenario in the markets “presents an unprecedented mix of cross-asset overvaluation ( with bonds, housing, and equities all critically overvalued and rapidly losing momentum), the commodity shock and the ferocity of the Fed.”

While “every cycle is different and unique, every historical parallel suggests the worst is yet to come,” he added.

German and British bond prices extended Wednesday’s declines after eurozone inflation hit 9.1% in August, above economists’ forecast of 9%.

The European Central Bank is expected to announce an interest rate decision next week. It raised borrowing costs earlier in the summer for the first time in more than a decade from a surprisingly high 0.5 percentage points to zero.

Morgan Stanley joined the ranks of other Wall Street institutions on Thursday anticipating an even bigger 0.75 percentage point rise at the ECB’s September meeting.

“We think this is a very close call, with good arguments on each side, but ultimately we think those who advocate a bigger hike will win out because September offers the best opportunity for ‘send a clear signal of determination,’ analysts at the US investment bank said. .

US government debt came under pressure on Thursday in lingering concerns over rising rates, with the yield on the 10-year Treasury adding 0.13 percentage points to 3.26%. Those moves deepened after new data pointed to a tightening in the U.S. labor market, with initial jobless claims standing at 232,000 for the week ending August 27 against estimates of 248,000.

The yield on the two-year note, which closely tracks interest rate expectations, added 0.05 percentage points to 3.5%, hitting a new 15-year high. Bond yields rise as their prices fall.

Anticipation of tighter monetary policy and a prolonged recession has already fueled concern over the financial health of companies, the yield spread between high-yield US corporate debt and government bonds. State having deepened in recent weeks. The spread, reflecting demand from premium investors to take on more risk, narrowed from just over 4.2 percentage points in mid-August to 5 percentage points at Wednesday’s close, according to an Ice index. Data Services.

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