Global markets dive as central banks hike rates, recession fears escalate

ISTANBUL

Amid hawkish monetary policy steps by central banks around the world and growing recession concerns, global stock markets continued on a downward trajectory.

Investors will be focused on US Federal Reserve Chair Jerome Powell’s remarks on Friday, as well as the latest purchasing managers’ index (PMI) data from the US and Europe.

As part of efforts to rein in soaring inflation, central banks of several countries made aggressive interest rate hikes on Thursday: UK, Norway, Switzerland, Taiwan, South Africa, Indonesia and the Philippines.

The Bank of Japan, however, has not changed its ultra-loose monetary policy, becoming the only central bank in the world with negative interest rates.

The aggressive rate hikes have deepened recession concerns and led to a rise in stock sales in developed markets.

On Thursday, the Dow Jones lost 0.35%, S&P 500 0.84%, and Nasdaq 1.37%.

The 10-year bond yield in the US climbed to 3.72%, the highest level since February 2011.

The US dollar index tested the 20-year high of 111.8, before rebalancing at 111.4.

The Bank of England increased its benchmark rate by 50 basis points to a 14-year high of 2.25%, while Switzerland’s central bank went for an increase of 75 basis points that raised its rate to 0.5%, abandoning its negative rate policy for the first time time since 2014.

Norway, meanwhile, increased the rate by 50 basis points to 2.25%.

The moves led to the UK pound and Swiss franc losing value against the US dollar, while the 10-year bond yield hit a 14-year high in the UK and a 3-month high in Switzerland.

Germany’s 10-year yield also edged toward 2%, a level not seen since September 2013.

Markets are now expecting the European Central Bank to make a rate hike of 75 basis points at its October meeting.

On Thursday, the STOXX 600 index dropped 1.79% to 399.76 points, the lowest level since February 2021.

Germany’s DAX 40 lost 1.84%, the French CAC 40 1.87%, and the UK’s FTSE 100 slipped 1.08%.

EUR/USD parity hit 0.9809 on Thursday, the lowest since October 2002.

After the Bank of Japan kept its rate at minus 0.1%, USD/JPY parity hit a 24-year low of 146, forcing a market intervention by the bank for the first time since 1998.

The rate decreased by around 4% to 142 after the bank’s intervention.

On Thursday, China’s Shanghai index lost 0.6% and South Korea’s Kospi dropped 1.7%, while markets in Japan were closed due to a bank holiday.

In Türkiye, the central bank lowered its policy rate by 100 basis points to 12%.

The Borsa Istanbul closed Thursday on 3,295.27 points with an increase of 1.53%, while the US dollar/Turkish lira rate was at 18.4.

Analysts said recession concerns have heightened amid expectations that central banks will continue to increase interest rates, a situation that has dented risk appetite in global markets.

* Writing by Gokhan Ergocun

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