US stocks and global fixed-income markets fell on Monday, extending a drop last week sparked by a new round of interest rate rises and hawkish comments from central bankers.
The S&P 500 closed 0.9 per cent lower, while the tech-heavy Nasdaq Composite index lost 1.5 per cent at the start of 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 each pushed interest rates higher by 0.5 percentage points last week, a step down in the previous pace of increases. However, they stood firm on their plans to continue their attempts to slow rising prices, 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.
Among individual stock moves on Monday, Facebook’s parent company Meta was among the biggest fallers, sliding more than 4 per cent. The company has been served with a complaint from the EU’s antitrust watchdog over concerns that the social network’s classified advertising service is unfair to rivals.
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 indicate 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 cam 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 traded flat against the dollar at $1.214. An index tracking the greenback against six peers was flat.
In Asia, Hong Kong’s Hang Seng index dropped 0.5 per cent while China’s CSI 300 index slid 1.5 per cent.