Australia’s investors weren’t the only ones caught in a downdraft this week as markets around the world shuddered and tumbled as interest rates roase and consumer confidence nosedived.
World stocks headed for their worst week since markets’ pandemic meltdown in March 2020 as leading central banks doubled down on tighter policy in an effort to tame inflation, setting investors on edge about future economic growth.
The biggest US rate rise since 1994, the first such Swiss move in 15 years, a fifth rise in British rates since December and a move by the European Central Bank to bolster the indebted south ahead of future rises all took turns in roiling markets.
The Bank of Japan was the only outlier in a week where money prices rose around the world, sticking with its strategy of pinning 10-year yields near zero on Friday.
After a week of punchy moves across asset classes, world stocks were flat on Friday to take weekly losses to 5.5 per cent and leave the index on course for the steepest weekly percentage drop in more than two years.
Overnight in Asia, the dollar climbed 1.8 per cent against the yen to 134.55 in volatile trade, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell to a five-week low, dragged by selling in Australia. Japan’s Nikkei fell 1.8 per cent and headed for a weekly drop of almost 7.0 per cent.
S&P 500 futures and Nasdaq 100 futures were both up 1.1 per cent, but remain well underwater on the week.
“The more aggressive line by central banks adds to headwinds for both economic growth and equities,” Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said.
“The risks of a recession are rising, while achieving a soft landing for the US economy appears increasingly challenging.”
Data from analysts at Bank of America showed more than 88 per cent of the stock indexes it tracks are trading below their 50-day and 200-day moving average, leading markets “painfully oversold”.
Bonds and currencies were jittery after a rollercoaster week.
US labour and housing data came in soft on Thursday, on the heels of disappointing retail sales figures, with the worries knocking the dollar and helping Treasuries.
Benchmark US 10-year Treasury yields fell nearly 10 basis points overnight but were last at 3.2162 per cent during early European trade. Yields rise when prices fall.
Southern European bond yields dropped sharply on Friday, though, after reports of more detail from ECB President Christine Lagarde over its plans to develop a tool to support yields.
Germany’s 10-year yield, the benchmark for the euro area, was last at 1.65 per cent.
In recent sessions, the dollar pulled back from a 20-year high, but it has not fallen far and was last up 0.3 per cent, on course to end the week steady against a basket of currencies.
Sterling rose 1.4 per cent on Thursday after a 25-basis-point rate rise and was last down 0.2 per cent as it heads for a steady week. Two-year gilts were last at 2.125 per cent.
“Despite today’s apparent semblance of calm in the markets, investors will need to transition from a soft to a hard landing strategy meaning they will either have to turn to defensive or de-risk completely,” Stephen Innes, managing partner at SPI Asset Management, said.
Growth fears took oil on a brief trip lower before prices steadied. Brent crude futures were last at $US120.53 ($A172.00) a barrel. Gold trimmed early gains to be down 0.3 per cent at $US1,848 ($A2,637) an ounce and bitcoin climbed 3.3 per cent to $US21,051 ($A30,041).
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