Global Stocks, Bonds Extend Selloff; Dollar Climbs: Markets Wrap

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(Bloomberg) — Stocks and bonds extended their selloff on Thursday as a hawkish drumbeat from central banks and a lockdown in China further frayed investor nerves. The dollar gained. 

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A global equity index hit a six-week low as Europe’s Stoxx 600 slid more than 1.5%, led by miners and real estate. US chipmakers fell in premarket trading, dragging down Nasdaq 100 futures, after a sales warning from Nvidia Corp. 

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The market jitters come after August’s losses, reflecting fears of an economic downturn alongside restrictive monetary policy to choke inflation. A global bond rout saw the two-year Treasury yield touch 3.50% for the first time since 2007.

Commodities fell as aggressive tightening and China’s slowdown dim the demand outlook. Oil and natural gas declined, while Europe considers various measures to intervene in the energy market. Gold fell and silver slid to the lowest in two years. 

Commodity-linked and Group-of-10 currencies weakened and the yen dropped to a 24-year low. Meanwhile, Russia is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, before shifting to a longer-term strategy of selling its holdings of the Chinese currency to fund investment. 

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Among individual moves, Reckitt Benckiser Group Plc’s shares fell on news that Chief Executive Officer Laxman Narasimhan will step down at the end of the month to pursue a new opportunity in the US. 

Nvidia fell 6% in premarket trading after the semiconductor company warned that new rules governing the export of artificial-intelligence chips to China may affect hundreds of millions of dollars in revenue. 

Stocks are entering a month that is often poor for returns and an equity bounce from June lows is fizzling as the Federal Reserve pushes back against bets on tempered rate hikes. A hotly anticipated US jobs report on Friday has the potential to tip the scales toward a third jumbo-sized hike in interest rates later this month after a wave of data that point to a resilient consumer and high labor demand.

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Meanwhile, European bonds fell as markets digested the possibility that central banks will need to ramp up the scale of rate hikes to rein in rampant inflation. Some of Wall Street’s biggest banks now expect the European Central Bank to hike rates by 75 basis points at next week’s meeting, while the latest economic data underlined a parlous outlook for China. 

China moved to lock down Chengdu, a city of 21 million residents, from Thursday night to tackle Covid. It’s the biggest Chinese city to face such curbs since Shanghai’s bruising two-month crisis earlier this year.

“The Fed effect is now melding with other global factors such as China’s growth slowdown and Europe’s stagflation to create a more fraught global macro environment with higher rates and lower growth,” said Alvin Tan, strategist at RBC Capital Markets in Singapore. “It is this combination of hawkish central banks led by the Fed, China’s slowdown and Europe’s stagflation that is now driving volatility across global markets.”

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Here are some key events to watch this week:

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Some of the main moves in markets:

Stocks

Currencies

Bonds

Commodities

• Brent crude fell 1.9% to $93.86 a barrel
• Spot gold fell 0.3% to $1,706.22 an ounce