Global markets extend worst half on record

London — Stocks sank on Thursday to extend what is the worst first half of the year for global share prices on record, as investors fret that the latest show of central bank determination to tame inflation will slow economies rapidly.

Central bank chiefs from the Federal Reserve, the European Central Bank and Bank of England met in Portugal this week and voiced their renewed commitment to control inflation no matter what pain it caused.

While there was little new in the messaging, it was another warning that the era of cheap cash which had turbocharged share prices for years is coming to an end.

By 7.40am GMT, the MSCI World Equity Index was down 0.48%, bringing its year-to-date losses to more than 20% — the worst fall since the index’s creation.

The Euro Stoxx dropped 1.53%, while the German DAX weakened 2.34%. Britain’s FTSE 100 was 1.64% lower.

US futures also fell, with little sign yet that the new quarter will bring in brave bargain hunters. This year’s dramatic slide in asset prices has been led by tech-heavy indices and stocks more sensitive to rising interest rates.

“Fed chair Jerome Powell and the FOMC [Federal Open Market Committee] don’t want to get this one wrong. They want to be 90% sure that inflation is on the way down, not evenly balanced,” said Steve Englander, Standard Chartered’s head of global G10 FX research.

“So the signals they send become increasingly hawkish when they see the market as possibly prematurely pricing in victory over inflation.”

Traders are now focused on data on US core prices due later in the session that are expected to underline the extent of the inflation challenge.

Sweden’s Riksbank became the latest to lift borrowing costs, pushing its key rate to 0.75% from 0.25% as expected, and flagging further sharp tightening to try to get price growth under control.

The Hungarian central bank also hiked rates, by 0.5% to 7.75%.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased another 0.5%, bringing its losses for the quarter to 10%.

Japan’s Nikkei fell 1.4%, though its drop this quarter has been a relatively modest 5% thanks to a weak yen and the Bank of Japan’s dogged commitment to super-easy policies.

The need for stimulus was underscored by data showing Japanese industrial output dived 7.2% in May, when analysts had looked for a dip of only 0.3%.

Chinese blue chips added 1.6%, helped by a survey showing a marked pick up in services activity.

With investors so fearful of a sharp global economic slowdown caused by central banks tightening policy, some analysts are willing to call for a second-half rebound.

“It’s not that we think that the world and economies are in great shape, but just that an average investor expects an economic disaster, and if that does not materialise risky asset classes could recover most of their losses from the first half,” JPMorgan wrote in a research note.

Dollar reigns supreme

The risk of recession was enough to bring US 10-year yields back to 3.06% from their recent peak at 3.498%, though that is still up 74 basis points for the quarter and nearly 160 bps for the year.

The Fed’s hawkishness and an investor desire for liquidity in difficult times has gifted the dollar its best quarter since late 2016. The dollar index was marginally lower at 105.01 but just off its recent two-decade peak of 105.79.

The Swedish crown was little moved by the Riksbank rate hike, and was last at 10.688 crowns.

The euro inched higher to $1.0449, having shed 5.5% for the quarter so far and 8% for the year. It dropped to a new 7½-year low versus the Swiss franc at 0.9963 francs .

The yen is in even worse shape, with the dollar having gained more than 12% this quarter and 18% this year to 137, its highest since 1998.

Reuters