Stocks tumbled at the end of a turbulent week and oil prices slipped back to levels last seen before Russia’s all-out invasion of Ukraine as fears over the health of the global economy swept financial markets.
Wall Street’s S&P 500 fell 1.8 percent in morning trade in New York, putting the price on track for a fourth straight day decline. In Europe, the Stoxx 600 lost 2.3 percent. That brings the regional index’s decline to over 20 percent from its January high, marking a switch to a technical “bear market.”
Those sharp moves came days after the US Federal Reserve gave the go-ahead for another round of rate hikes by global central banks, raising borrowing costs by 0.75 percentage points for the third consecutive day to bring its target range to 3-3.25 cents .
A day later, the Bank of England joined the tightening trend, raising interest rates by 0.5 percentage point to 2.25 percent, while the Swiss National Bank pushed its benchmark interest rate into positive territory for the first time since 2015 at 0.5 percent.
Concerns have increased in recent months that the authorities will turn monetary policy aggressively enough to dampen demand and exacerbate an economic slowdown. Those concerns have fueled volatile trading this week, with sharp swings in stock prices and bond yields.
Rising U.S. interest rates and the looming recession in the world’s largest economy prompted Wall Street bank Goldman Sachs to cut its year-end forecast for the S&P 500 index to 3,600 — down about 4 percent from Thursday’s close .
David Kostin, equity strategist at Goldman, said the majority of the bank’s clients believed that a “hard landing” for the US economy was inevitable and investors were anticipating the timing, depth and duration of a potential recession focused.
Citi’s asset allocation team said the Fed had “as good as promised a US recession” and investors should not pin their hopes on a “Santa Claus” rally for the stock market by the end of the year.
In another sign that recession fears are gripping markets, international benchmark oil Brent slipped more than 5 percent on Friday to its weakest level since January, below $86 a barrel — pushed down by expectations of softening demand .
Meanwhile, in an announcement that weighed heavily on UK markets, new Chancellor Kwasi Kwarteng unveiled a mini-budget detailing a package aimed at boosting growth in Britain’s sluggish economy on Friday. The plan included bold cuts in corporate and personal tax rates.
London’s FTSE 100 fell 2.3 percent. UK government bond yields rose by historic magnitudes across all maturities, reflecting concerns about the cost of the government’s borrowing strategy, which is funded in large part by selling gilts.
The 10-year gilt yield rose 0.31 percentage point to 3.8 percent, taking its rise to more than 0.6 percentage point this week – one of the largest rises on record. The policy-relevant two-year yield increased by 0.46 percentage points to 3.97 percent. Bond yields rise when their prices fall.
The five-year yield rose 0.47 percentage points to hit 4 percent, according to Refinitiv data.
In currencies, the pound fell more than 3 percent against the dollar to a fresh 37-year low of $1.09. The greenback rose 1.4 percent against a basket of six peers to hit a fresh 20-year high.