(Bloomberg) — Risk-off sentiment returned to markets on Thursday as concern about inflation and the risk of global recession overshadowed the Bank of England’s move to restore calm.
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The pound snapped a two-day gain and UK gilt yields rose as Prime Minister Liz Truss spoke on local radio. The BOE’s bond-buying program temporarily curbed selling pressure, but left currency traders facing broader jitters over the nation’s tax-cut plan.
The dollar climbed versus all of its Group-of-10 counterparts and Treasuries slumped as investors focused on expectations the Federal Reserve will continue to deliver aggressive interest-rate hikes. European bond yields also rose as investors digested the latest inflation data and commentary from European Central Bank officials.
Stocks and US futures fell in the wake of a 2% advance for the S&P 500. Hong Kong’s Hang Seng Tech Index reversed course and headed for its lowest since inception. Retailers plunged in Europe after Hennes & Mauritz AB and Next Plc missed estimates, while Porsche AG rose after the largest initial public offering in Europe in more than a decade.
“The markets are very pessimistic. Investors are fairly on the sidelines,” said Julia Raiskin, Asia-Pacific head of markets for Citigroup Inc. “Other than the dollar, there are not many assets that are trading constructively.”
Investors are contending with threats posed by discordant moves from central banks over the past few days, with Federal Reserve officials adamant on further monetary tightening, the BOE unveiling a £65 billion ($71 billion) plan to support government debt and authorities in Asia trying to prop up weakening currencies.
“The central bank is in a very difficult position right now,” Julie Biel, Kayne Anderson Rudnick portfolio manager and senior research analyst, said of the BOE in an interview with Bloomberg TV. “Everyone has been a little bit backed into a corner in seeing the volatility and market reaction.”
Federal Reserve officials continued to hammer home the central bank’s hawkish outlook. The Fed’s Atlanta President Raphael Bostic said he backs raising rates by a further 1.25 percentage points by the end of this year to counter inflation that has been worse than he expected.
European Union officials unveiled fresh economic limits on Russia in response to further annexing of Ukraine. The new round of sanctions would bar sales of Russian oil by third party countries beyond a set price cap. The plan would inflict around $6.7 billion in economic pain on Russia.
China’s onshore yuan advanced for the first time in nine sessions, after the central bank issued a verbal warning against currency speculation.
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Key events this week:
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US initial jobless claims, GDP, Thursday
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Fed’s Loretta Mester, Mary Daly speak at events, Thursday
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China PMI, Friday
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Euro zone CPI, unemployment, Friday
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US consumer income , University of Michigan consumer sentiment, Friday
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Fed’s Lael Brainard and John Williams speak, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 1.6% as of 8:30 a.m. London time
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Futures on the S&P 500 fell 1.2%
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Futures on the Nasdaq 100 fell 1.4%
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Futures on the Dow Jones Industrial Average fell 1.1%
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The MSCI Asia Pacific Index fell 1.7%
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The MSCI Emerging Markets Index fell 1.8%
Currencies
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The Bloomberg Dollar Spot Index rose 0.7%
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The euro fell 0.9% to $0.9645
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The Japanese yen fell 0.4% to 144.77 per dollar
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The offshore yuan fell 0.7% to 7.2154 per dollar
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The British pound fell 1% to $1.0776
Cryptocurrencies
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Bitcoin fell 1.3% to $19,316.1
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Ether fell 2.4% to $1,318.51
Bonds
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The yield on 10-year Treasuries advanced 12 basis points to 3.85%
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Germany’s 10-year yield advanced 12 basis points to 2.24%
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Britain’s 10-year yield advanced 18 basis points to 4.19%
Commodities
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Brent crude fell 1.7% to $87.82 a barrel
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Spot gold fell 1% to $1,642.63 an ounce
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