State Street's Graf did not see recession as inevitable, but said the probability has increased with "monetary tightening and the squeeze on real incomes from commodity prices." read moreīitcoin, which fell as low as $20,816, recovered somewhat but still ended down 2.7%.īrent crude futures fell 1.17% to $120.84 a barrel, as investors worried about rate rises crimping demand, and a proposed U.S. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.59% lower, tracking Wall Street's losses, while Japan's Nikkei (.N225) lost 1.32%.Ĭrypto markets, where bitcoin and ether hovered near 18-month lows, have also been drubbed by interest rate expectations and crypto lender Celsius Network's decision to freeze withdrawals. "I think there are other shoes to drop," he said. ![]() stock valuations still above COVID-era lows. ![]() "Stock markets are reflecting the reality of the first-order effect of tighter financial conditions," Graf said, predicting more pain with U.S. "Quite simply, when we see monetary tightening the order of what we are seeing globally, something is going to break," said Timothy Graf, head of EMEA macro strategy at State Street. Investors' repricing of higher rates has pummeled assets that benefited from rock-bottom interest rates, including stocks, crypto, junk-rated bonds and emerging markets. read moreĮuro zone government bond yields also hit multi-year highs, as spreads between core and periphery widened amid concerns about faster policy tightening by central banks. Markets now see the Fed's rate hike cycle peaking around 4%, a whopping 100 basis points above the 3% last month. rate expectations, two-year Treasury yields rose to 3.4560%, the highest since November 2007, while 10-year Treasury yields struck an 11-year high of 3.4980%. MSCI's gauge of stocks around the world (.MIWD00000PUS) dropped 0.65% to levels last seen in November 2020, while a pan-European equity index (.STOXX) slumped 1.26% to March 2020 lows. That is roughly in line with its 10-year ratio average, and compares with a reading of more than 20 before the market correction. The index now trades at a more attractive valuation of about 17 times its forward price-to-earnings ratio, according to data provider Datastream. The S&P 500 tumbled into bear market territory on Monday after shedding more than 20% since a record close on Jan. The Nasdaq Composite (.IXIC) bucked the trend and managed to eke out gains of 0.18%. The Dow Jones Industrial Average (.DJI) dropped 0.5% to a 16-1/2-month low, and the S&P 500 (.SPX) slipped 0.38%. Recession concerns and uncertainty around the outlook for rates weighed on stocks. The analysts said they expect the Fed to raise rates by another 75 basis points in July, and predict that higher rates will likely bring on a recession in mid-2023. ![]() "A 75-basis-point increase is more consistent with the Fed's prior desire to 'expeditiously' raise rates to neutral," Goldman Sachs analysts said in a note to clients on Tuesday, adding that "a restrictive policy stance is necessary to tame inflation."
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