World stocks hit five-week low, yields soar on rate hike outlook

REUTERS: World stocks hit five-week lows, U.S. stock index futures indicated a lower Wall Street open and bond yields soared to multi-year highs yesterday as investors brace for rate hikes in the United States, Britain and the euro zone.

The yuan struck a nine-month low, meanwhile, as lockdowns in Shanghai hit China’s growth prospects.
U.S. Federal Reserve Chairman Jerome Powell said on Thursday that a half-point interest rate increase would be “on the table” when the Fed meets in May, adding it would be appropriate to “be moving a little more quickly”. 

European Central Bank officials said on Thursday that the central bank might start hiking euro zone rates as early as July, while Bank of England interest rate-setter Catherine Mann said that borrowing costs would probably have to rise further. 

Euro zone money markets now fully price in a 25 basis point rate hike by July.
“The Fed, the ECB and the Bank of England were pushing hawkish commentaries on the markets and markets have reacted,” said Monica Defend, head of Amundi Institute, though she added: “For the euro area, we are more sceptical on the fragility of the economic cycle, there is big potential for a recession to take place in Germany and Italy.”

U.S. purchasing managers’ data is due later yesterday.  Euro zone business growth unexpectedly accelerated this month, with the bloc’s dominant services sector seeing a sharp increase in activity as consumers shrugged off soaring prices, a survey showed yesterday.

Manufacturers, however, struggled as supply chain disruptions caused by the pandemic have been exacerbated by Russia’s invasion of Ukraine and renewed lockdowns in China.

Russia pressed its new offensive in eastern Ukraine while in the port city of Mariupol, teams of volunteers collected corpses from the ruins after Moscow declared victory there despite Ukrainian forces holding out. MSCI’s world equities index (.MIWD00000PUS) was down 0.49 percent at its lowest since mid-March, and was heading for a 0.75 percent drop on the week.

S&P futures were down 0.25 percent after Wall Street indexes fell on Thursday.
European stocks (.STOXX) dropped 1.3 percent, with France’s CAC 40 (.FCHI) down 1.63 percent ahead of Sunday’s presidential run-off vote. Britain’s FTSE (.FTSE) fell 0.8 percent. Selling pressure persisted in bond markets, driving five-year U.S. Treasury yields to 3.049 percent and two-year yields to 2.776 percent, both at their highest since late 2018.

German two-year yields rose to 0.277 percent, their highest since 2013.