Shares slipped and the dollar firmed on Monday as investors prepared for a packed week of central bank meetings which will see borrowing costs rise globally, with the chance of a super-sized hike in the United States.
Markets are fully priced for a rise in interest rates of 75 basis points from the Federal Reserve, with futures showing a 20% chance of a full percentage point.
They also indicate a real chance that rates could hit 4.5% as the Fed is forced to tip the economy into recession to subdue inflation.
"Asset performance during this Fed tightening cycle is very different from the norm for other rate hike episodes," said David Chao, a global market strategist at Invesco
"Usually, the Fed tightens when the economy is thriving and most assets do well. However, most assets have suffered this time, perhaps due to the surge in inflation and abrupt policy change."
Trading was thinned on Monday with British markets closed for Queen Elizabeth II's state funeral, but Europe's STOXX index (.STOXX) slid 0.5% to its lowest level in two months, dragged down by tech stocks.
MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), fell 0.6%, continuing to set new two-year lows, also hurt by declining tech stocks,
As well as the specific rate hike, investors will be watching Fed members' "dot plot" forecasts for rates, which are likely to be hawkish, putting the funds rate at 4-4.25% by the end of this year, and even higher next year.
