Global stocks falter after Wall Street plunges into bear market | national news

TOKYO (AP) — Global stocks fell on Tuesday following Wall Street’s plunge into a bear marketas investors anxiously contemplated a new and uncertain world of higher interest rates, international conflict and fears of recession.

Stocks traded lower in Europe, erasing brief gains after markets opened, while Asian stocks fell but later recovered some gains.

The STOXX Europe 600 index was down 0.5% after opening higher. The French CAC 40 was down 1.33%, the DAX 0.55% and the FTSE 0.4%. In Asia, Shanghai advanced, while Hong Kong finished flat and Tokyo fell.

Tuesday’s market action follows Monday’s bearish headlines on Wall Street, where the benchmark S&P 500 lost 3.9%, putting it 21.8% below its peak. It meant a bear market, when an index fell 20% or more from a recent high for an extended period.

At the center of the sell-off is the US Federal Reserve’s effort to controlling inflation by raising interest rates. The Fed is trying to control prices and its main method is to raise rates, but it is a brutal tool that could slow the economy too much and cause a recession. The war in Ukraine sends oil and Food prices significantly higher, fuel inflation and undermine consumer spending, especially in Europe.

“The old pre-corona balance of low inflation, ultra-loose monetary policy and low geopolitical risk premia no longer holds,” said Andreas Koester, head of portfolio management at Union Investment in Frankfurt, Germany.

“We are now in a transition to a new post-corona equilibrium, of which only the contours are visible, such as higher levels of inflation or a return to great power competition on the international stage,” Koester added.

Sharp declines, however, can present risk-tolerant investors with an opportunity to pick up some bargains. US stocks appeared to be heading for a modest rebound as markets opened, with the future for Dow industrials up 0.05%. The S&P 500 future was 0.1% higher.

Some economists speculate that the Fed could raise its key rate by three-quarters of a percentage point at its meeting on Wednesday. That’s triple the usual amount and something the Fed hasn’t done since 1994.

“Global markets…have demonstrated that they don’t like the current state of the global economy,” Robert Carnell, regional head of Asia-Pacific research at ING, said in a report.

Other central banks around the world, including the Bank of England, also raised rates, while the European Central Bank says he will do so next month and in September.

In addition to concerns about inflation and central bank action to temper soaring prices, restrictions on curb the spread of COVID-19 in China also weighed on market sentiment in Asia.

The reorientation of central banks, particularly the Fed, towards higher interest rates has reversed the dramatic rise in equity prices spurred by massive market support after the pandemic hit in early 2020. Markets brace to bigger-than-usual gains, in addition to some discouraging signals about the economy and corporate earnings, including a record early reading on consumer sentiment soured by high gasoline prices.

Higher benchmark interest rates increase the returns of less speculative investments such as bonds, increasing their attractiveness relative to equities. And deliberate measures will slow the economy by making borrowing more expensive.

The risk is that central banks will cause a recession if they raise rates too high or too quickly. Last month the The Fed signaled an additional rate increases of double the usual amount are likely in the coming months. Consumer prices in the United States are at their highest level in four decades and rose 8.6% in May from a year ago.

One of the most reliable warning signs of an economic recession sounded as short-term US Treasuries briefly outperformed longer-term Treasuries. This can be a sign of pessimism about the long-term outlook and signal that a recession may be on the way.

Another factor influencing inflation and investor sentiment is the price of oil. It remained near $120 a barrel on Tuesday, up about 60% so far this year.

Benchmark U.S. crude rebounded from losses earlier on Tuesday, gaining 54 cents to $121.47 a barrel in electronic trading on the New York Mercantile Exchange. It gained 26 cents to $120.93 on Monday.

Brent crude, the international standard, gained 62 cents to $122.89 a barrel.

In currency trading, the dollar slipped to 134.29 Japanese yen from 134.46 yen late Monday. The euro traded at $1.0446, down from $1.0409.

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