US stocks and global fixed-income markets slipped on Monday, extending a drop last week sparked by a fresh round of interest rate rises and hawkish comments from central bankers.
The S&P 500 fell 0.5 per cent in lunchtime trading while the tech-heavy Nasdaq index slipped 1.1 per cent to start the last full trading week of the year, as investors assessed the pace and scale of interest rate rises to come.
The Federal Reserve, European Central Bank and the Bank of England all pushed interest rates higher by 0.5 percentage points last week, a step down in the pace of increases. However, they stood firm on their plans to continue their attempt to slow price growth, with the ECB saying “inflation remains far too high”. Their warnings that further interest rate rises are needed to bring record inflation under control sent global stock markets lower last week.
Fixed-income markets were also under selling pressure on Monday. The 10-year UK gilt yield jumped 0.17 percentage points to 3.5 per cent, while the equivalent US Treasury yield gained 0.11 percentage points to 3.59 per cent. Higher yields point to falling prices.
In European equities, the regional Stoxx 600 gained 0.3 per cent, while Germany’s Dax advanced 0.4 per cent. The UK’s FTSE 100 climbed 0.4 per cent. The gains on Monday for the Stoxx 600 came after two straight weeks of falls.
“The market doesn’t believe the Fed, with a pricing disconnect now opening up,” wrote Jim Reid, head of global fundamental credit strategy at Deutsche Bank. “The market is now worried the ECB has upped its level of hawkishness.”
Some economists say inflation may have peaked in the UK, US and Europe but are considering the extent to which the factors pushing prices higher will continue into the new year, and whether economies will flash warning signs of distress, such as through higher unemployment figures.
“Markets are likely to continue to trade the peak US inflation narrative into year-end,” said Jordan Rochester, G10 FX strategist at Nomura.
In currency markets, the pound gained 0.3 per cent against the dollar to $1.218.
In Asia, Hong Kong’s Hang Seng index dropped 0.5 per cent while China’s CSI 300 index slid 1.5 per cent.