Stocks sagged and bond yields firmed on Thursday as looming central bank rate meetings cast a shadow over largely resilient corporate earnings so far which have failed to dispel downbeat investor sentiment.
The strong dollar continued to loom over currency markets, with the yen sinking to a 32-year low against the greenback. Investors braced for intervention as the Japanese currency fell below 150 for the first time since 1990.
U.S. 10-year Treasury yields touched a 14-year high, while 2-year German government bond yields rose to their highest since December 2008.
"There is a concern the economy over the course of the next 12 months are going to be extraordinarily difficult, with the mood slightly pessimistic when it comes to corporate earnings," said Mike Hewson, chief markets analyst at CMC Markets.
Investors were readying for anticipated hefty rate hikes from the European Central Bank next week, and the U.S. Federal Reserve and the Bank of England in the following week, Hewson said. The MSCI all country stock index (.MIWD00000PUS) was down 0.2%, adding to its 25% drop so far this year, wiping out the gains clocked up in 2021.
In Europe, the STOXX (.STOXX) index of 600 companies was down 0.5%, down almost 20% for the year so far, as downbeat earnings from chip equipment firm BE Semiconductor and telecom company Nokia fuelled fears of economic slowdown.
Eren Osman, managing director of wealth management at Arbuthnot Latham & Co, said earnings so far in the United States and elsewhere have shown resilence as many companies beat expectations. But earnings are likely to fall next year which, along with anticipated interest rate hikes in the United States and elsewhere, are already largely priced into markets, Osman said.
"Once we start to see the ISM manufacturing data start to trough, the markets will get some confidence that we have seen the worst of it. A lot of people are waiting for that moment of capitulation and it might not happen," Osman said.
