Markets reeling from inflation causing bond yields to soar

5th consecutive decline: Paris down 2.67%, Frankfurt 2.43%, London 1.49%. In Zurich, the SMI lost 1.71%.

Financial markets on Monday were still suffering from record inflation in the United States, which is reigniting recession fears amid possible further monetary tightening by central banks.

In Europe, European indices recorded their 5th straight decline: Paris down 2.67%, Frankfurt 2.43%, London 1.49%. In Zurich, the SMI lost 1.71%.

After heavy losses on Friday, US indices were still struggling: the Dow Jones fell 1.94%, the Nasdaq index, which has a strong technology composition, lost 3.59% and the broader S&P 500 index lost 2.80 %.

Stock markets are “in free fall as the reality of high inflation, even faster monetary tightening and a cost of living crisis really hits,” said Craig Erlam, an analyst at Oanda.

With inflation picking up again in the US in May, investors are concerned that the US Federal Reserve may have had an even stronger hand than previously expected in tightening monetary policy.

They will have their eyes glued to his announcements at the end of his meeting, which takes place on Tuesday and Wednesday. A half a percentage point or 50 basis point hike in their key interest rates seems certain, but now markets are fearing a bigger hike of 75 basis points.

The same is true in the UK, where the central bank could hike rates faster after its meeting on Thursday, while the possibility of a major interest rate hike by the European Central Bank in September n is no longer taboo as of last week.

Bond shock

The risk of steeper interest rate hikes and a recession was reflected in rising government yields.

The 10-year US Treasury yield, which moves inversely with its price, hit its highest level in more than 11 years on Monday: the benchmark US Treasury yield rose to 3.32%, a high since May 2011, versus 3.15%. on Friday.

The US two-year bond rate climbed to 2007 levels, briefly outperforming long-term rates for the first time since April. At around 16:15 GMT, it was at 3.20%.

In the eurozone, the move was identical: the 10-year yield on Italian bonds exceeded 4%, the French borrowing rate for the same maturity exceeded 2% and the German Bund was at 1.63%, a level not seen since 2014 became.

“The only thing that can calm the markets is a clear and sustained drop in commodity prices,” said Alexandre Baradez, an analyst at IG France.

Oil returns above $120

After falling for most of the day, the price of oil bounced back above $120.

At around 16:25 GMT, the price of a barrel of North Sea Brent crude rose by 0.59% to $122.72 and that of a barrel of American WTI rose by 0.46% to $121.22.

Bitcoin, yen and rupee at lows

The price of bitcoin, which hit a record high of $68,992 in late 2020 and 2021, returned to its 18-month level at less than $24,000 on Monday, down 66%.

The dollar, on the other hand, benefited from its safe haven status and the prospect of further rate hikes by the US Federal Reserve (Fed).

The euro lost 0.69% to $1.0445.

The pound fell 1.02% against the greenback to $1.2191 per pound as it suffered from a contraction in the UK economy in April.

The Indian rupee fell to an all-time low of 78.28 rupees per dollar on Monday.

Widespread sale

Investors are fleeing the stock markets and the sale of securities is affecting all sectors, starting with technology, automobiles, mining, luxury and tourism.

Even the banks were down despite the rise in interest rates boosting their profitability.

Among the survivors

British transport group Go-Ahead landed strong (+11%) after announcing it had received two unsolicited takeover bids, the amounts of which were unknown.

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