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Stocks on Wall Street faltered and public debt sold off as investors closely watched the ongoing Evergrande crisis and digest hawkish signals from several major central banks.
The US S&P 500 Index was pretty much unchanged over Friday afternoon in New York, heading for a weekly gain of 0.4%.
The stocks had largely recovered from a large sell-off on Monday, which shook market confidence. Investors withdrew $ 24.2 billion from global equity funds in the seven days ending Wednesday, the first weekly outflow of this year, according to data from EPFR Global.
U.S. equity funds posted a weekly outflow of $ 28.6 billion over the same period, the highest levels seen since February 2018.
The yield on the 10-year U.S. Treasury bill, a key benchmark for global borrowing costs, rose 0.03 percentage points to 1.46% after the Federal Reserve reported earlier this week that a A growing number of its policymakers were expecting a rate hike in 2022.
The Fed’s message was followed by Norges Bank of Norway becoming the first major Western central bank to hike rates on Thursday and the Bank of England revealing that the deal had “strengthened” for a “modest tightening of the currency. monetary policy ”over the next few years.
“It feels like a swallow doesn’t have a summer, but you see two and investors start to think summer is here,” said James Athey, bond portfolio manager at Abrdn. “We had a decidedly hawkish Fed. . . people therefore have the impression that central banks are moving towards a stricter policy. “
In response to the change in stance by policymakers, the UK 10-year gilt yield jumped more than 0.1pp on Thursday and another 0.01pp on Friday. The yield on the equivalent German Bund rose 0.03pp to minus 0.23%.
The massive sell-offs were driven in part by lingering fears of higher inflation, which is eroding real yields on fixed income securities such as sovereign debt.
On Thursday, the BoE kept interest rates at a record 0.1%, but warned that UK consumer price inflation could rise slightly above 4% in the last quarter of the year. Analysts are now predicting a further rise in consumer prices due in part to soaring natural gas prices.
“We are in the camp which [high inflation] is not a permanent problem, ”said Jorge Garayo, head of inflation strategy at Société Générale. But “we’re going to have a lot of uncertainty and volatility in the inflation numbers for the months to come.”
Global stocks were mixed on Friday as the long-awaited bond payment deadline for Chinese property developer Evergrande was passed, sending signs of strain to the Chinese real estate sector, fears the company’s growing liquidity crunch could end. result in contagion to other sectors and countries.
Evergrande, the world’s most indebted real estate developer, was due to make an $ 84 million interest payment on an offshore bond on Thursday, but investors told the Financial Times that no payment has yet been received. Evergrande has a grace period of 30 days before a default on payment results in a default on payment.
The European benchmark Stoxx 600 closed down 0.9% and London’s FTSE 100 fell 0.4%. In Asia, Hong Kong’s Hang Seng Index closed 1.3 percent lower, bringing its drop for the week to nearly 3 percent.
Beijing hit investor sentiment further on Friday, aiming to crack down on cryptocurrencies by declaring all digital coin activity “illegal.” The price of bitcoin fell 6% in response, as did the shares of dozens of US-listed companies linked to digital finance such as Riot Blockchain and Marathon Digital.
The dollar index, which measures the greenback against six currencies, rose 0.3 percent.
Not covered – Markets, finance and strong opinion
Robert Armstrong dissects the most important market trends and explains how the best minds on Wall Street are reacting to them. Register now here to receive the newsletter directly in your inbox every day of the week