The broad S&P 500 fell 0.8 percent in morning trade on Wall Street, while Europe’s Stoxx 600 slipped 0.6 percent. The yield on 10-year U.S. government debt, a benchmark for global borrowing costs, fell above 3.5 percent for the first time since 2011 as investors sold the bonds. Monday’s dismal performance comes after MSCI’s broad index of developed and emerging market shares fell 4 percent last week, its biggest weekly decline since June. Concerns about the health of the global economy and the specter of further big interest rate hikes from major central banks have spooked investors. “This is like a make or break week. There’s the rest of the repricing anxiety we went through last week and there’s no sense that sentiment is turning for the better,” said Samy Chaar, chief economist at Lombard Odier. In currencies, the dollar rose about 0.4 percent against a basket of other currencies, extending a strong rally in recent months fueled by rising U.S. interest rates. The dollar’s rise hit sterling, which fell to less than $1.14. “The foreign exchange market probably best summarizes how close we are to some kind of tipping point,” Chaar said. “The big question will be whether we get any positive signal from central banks about when their hiking cycle will peak. . . You don’t see many paths through which the Fed could be reassuring.” The consensus expectation on Wall Street is that the Fed will raise interest rates by 0.75 percentage points at the end of its two-day meeting on Wednesday. Market expectations for a third straight increase of this size were boosted last week by data showing that US consumer price inflation fell less than expected in August. Pricing on federal funds futures suggests the Fed will raise its key rate to 4.4% in the first months of 2023, from the current range of 2.25% to 2.5%, as policymakers try to to reduce inflation. Fears are mounting among investors that the central bank’s efforts to curb inflation with monetary tightening will push the U.S. economy into recession as debt servicing costs rise for companies and individual borrowers. The yield on U.S. 10-year inflation-linked notes, which indicate the returns investors can expect after accounting for inflation, hit 1.159 percent, the highest since 2018. So-called real yields were about minus 1 percent hundred at the start of the year, flattering the valuations of the fast-growing technology companies that weigh heavily on US stock indexes. The Japanese yen fell 0.3 percent to ¥143 against the dollar after hitting a 24-year low last week, before the government stepped up its verbal intervention aimed at calming the country’s currency market. The Bank of Japan is due to make its latest policy decision on Thursday. Most economists expect the BoJ to keep 10-year bond yields near zero as it tries to spark more resilient inflation in an economy that has endured decades of low price growth. The Bank of England is also due to announce its interest rate decision on Thursday, with the consensus forecast among City of London analysts pointing to a rise of 0.5 percentage point. Asian shares also fell, with MSCI’s broadest index of shares in the region down about 0.5 percent. Stock markets in the UK and Japan remained closed for public holidays.
