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Stocks extend falls as rate rise expectations weigh
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Fed minutes to provide next clues
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Wall Street expected to dip after biggest fall of year
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VIX 'fear gauge' testing highs of year
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Graphic: World FX rates By Naomi Rovnick LONDON, Feb 22 (Reuters) -
Nerves that interest rates will keep grinding higher left the main world share indexes at their lowest levels in more than a month on Wednesday and had the so-called 'fear gauge' of global markets, the VIX, testing its highest reading of 2023 so far.
With minutes from this month's U.S. Federal Reserve
meeting likely to provide more clues on its rate hike plans
later in the day, MSCI's main index of global shares fell to its lowest since Jan. 19 as Asian,
European and Wall Street futures markets all fell. Europe's STOXX 600 was down 1%, S&P 500
futures were down 0.2% a day after the U.S. benchmark had
suffered its worst day of the year so far, while the CBOE's VIX
volatility gauge was up for a fourth day in five. Nasdaq futures were also in the red again after the
tech-heavy index - highly sensitive to global borrowing costs
due to lofty company valuations - slumped 2.4% on Tuesday when
upbeat PMI data was taken as a green light for more rate hikes.
A batch of strong economic surveys in recent weeks has scotched a cross-asset rally that began last October on the basis that the global economy and inflation would cool quickly enough to persuade the Fed and other top central banks to end their rate hikes.
"The market has been overly optimistic," said Luca Paolini, chief strategist at Pictet Asset Management.
"The economic data has been much more resilient than we all thought (it would be) and we have to accept that."
The MSCI all-country stock index, which bounced 7.1% in January, has fallen 2.3% so far this month, depressed somewhat counterintuitive by bonanza U.S. jobs numbers and a wave of global growth upgrades. BIG CALLS
Wednesday's moves in the bond markets, which react to
central bank moves and drive global borrowing costs, left key
10-year U.S. Treasury yields at their highest since
November at roughly 3.95% and equivalent European yields down
only slightly from August highs at 2.535%. That was a reversal of a strong showing for Treasuries
at the start of the year, when bonds rallied to reflect bets of
inflation declining. The benchmark 10-year yield has risen more
than 60 bps from its January low.
"A bear market rally driven by expectations that
inflation would drop and interest rates would peak out may be
over," said Trevor Greetham, head of multi-asset at Royal London
Asset Management.
"The big call this year will still be (a) recession," he added, as "interest rates go higher," in a move that would eventually spark "an earnings driven bear market (that) hasn't started yet."
Money markets now anticipate the Federal
Reserve, the world's most influential central bank, will take
its funds rate, currently set at 4.5% to 4.75%, up to almost
5.4% this year.
New Zealand's central bank also raised interest rates by 50 bps on Wednesday to a more than 14-year high of 4.75%, flagging more monetary tightening to come.
In the currency markets, the dollar nudged up 0.2% as it headed for a 2% February gain and its first monthly gain in five.
Brent , the global oil benchmark, dropped 0.8% to
around $82 a barrel. It was shaping up to be its fifth fall in
the last six sessions and is down a modest 2% this month and 4%
in 2023.
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(Additional reporting by Marc Jones in London and Selena Li in
Hong Kong; editing by Chizu Nomiyama)
