LONDON, April 5 (Reuters) – Global stock markets tumbled on Wednesday as signs the economic outlook was weakening urged caution, while a bigger-than-expected rate hike from New Zealand lifted the Kiwi dollar.
European stocks fell as the broad STOXX 600 index retreated from Tuesday’s one-month highs (.STOXX). US stock futures fell and Japan’s Nikkei (.N225) fell 1.6% for the largest one-day percentage decline since mid-March.
MSCI’s world stock index (.MIWD00000PUS) retreated further from Tuesday’s near seven-week highs, while trading in Asia was thinned by holidays in Hong Kong and China.
Weak US economic data this week has heightened recession concerns and taken the edge off recent stock market gains.
Tuesday’s data showed that US job vacancies fell to their lowest level in nearly two years in February, and Monday’s data pointed to a slowdown in US manufacturing activity. US service sector activity data for March will be released later.
Interest rate futures have rallied sharply in recent weeks as traders bet that the turmoil in the banking sector will tighten lending anyway and spare the Federal Reserve work.
Pricing in the markets implies a better than average chance that the Fed will have completed raising rates and cutting rates by more than 60 basis points this year.
“With the banking concerns that are at least in the background, the focus is initially on the economic data and central bank policy,” said Nordea chief analyst Jan von Gerich.
“There is no fixed way for markets to interpret the data, but it appears that recent data has not been viewed as positive for equities as it has raised growth concerns.”
In a statement, Luca Paolini, chief strategist at Pictet Asset Management, said that Pictet upgraded US equities to neutral from underweight as the focus shifted from inflation to risks to growth.
kiwi jumps
The US dollar index stalled at two-month lows and the currency fell to 0.9049, its lowest level against the Swiss franc since August 2021, as the end of the US Federal Reserve’s tightening cycle nears.
In contrast, the New Zealand currency, also known as the kiwi dollar, surged after the Reserve Bank of New Zealand hiked interest rates by 50 basis points to a 14-year high of 5.25%.
It surged to its highest level since mid-February, last trading up 0.2% at $0.6383.
Outside the United States, markets are seeing other central banks staying the course in raising interest rates to tame inflation. A Reuters poll of FX strategists showed most expect downward pressure on the dollar to continue this year.
The euro was steady but held near Tuesday’s two-month high of $1.09, while sterling remained near its highest level in about 10 months against the dollar.
While government bond yields rose modestly on Wednesday, they have fallen in recent weeks – reflecting expectations of weaker growth and a pause in monetary tightening.
Two-year Treasury yields were 3 basis points higher at 3.87%, but well below highs of over 5% recorded just before the collapse of the Silicon Valley bank last month.
“We’re not quite done with the tightening cycle, but we’re getting closer,” said Jim Cielinski, global head of fixed income, Janus Henderson.
In Europe, government bond yields have been broadly stable after spiking sharply in recent weeks.
Non-yielding gold hit a new yearly high of over $2,000 an ounce. It was last up nearly 0.3% to $2,025 an ounce.
Commodity markets calmed after Monday’s rise in oil prices on news of surprise OPEC+ production cuts.
Brent crude futures were up 36 cents, or 0.4%, to $85.31 a barrel. West Texas Intermediate US crude was up 28 cents, or 0.37%, to $81.02 a barrel.
Reporting by Dhara Ranasinghe; Editing by Conor Humphries
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