# Inflation fears grip markets as bonds, stocks plunge
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-06-13
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Global Stocks and Bonds Plunge Amid Red-Hot Inflation
Meta Description: Markets in turmoil as worries over aggressive policy tightening and economic recession loom, dragging equities and bonds lower. Stay informed with Reuters.
URL: https://financedigest.com/inflation-fears-grip-markets-as-bonds-stocks-plungehtml

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By Saikat Chatterjee

LONDON (Reuters) – Global stocks and government bonds extended a bruising sell-off on Monday and the dollar resumed its march towards two-decade highs as red-hot U.S. [inflation fuelled worries about even more aggressive policy](https://www.financedigest.com/boes-mann-falling-headline-inflation-high-core-make-policy-difficult.html "BoE’s Mann: Falling headline inflation, high core, make policy difficult") tightening in a big week for central banks.

A [market gauge](https://www.financedigest.com/industrial-gauges-market-competitive-growth-strategies-based-on-type-applications-end-user-and-region.html "Industrial Gauges Market Competitive Growth Strategies Based on Type, Applications, End User and Region") measuring the gap between U.S. two-year [Treasury yields](https://www.financedigest.com/wall-street-stocks-power-higher-as-treasury-yields-and-dollar-ease.html "Wall Street stocks power higher as Treasury yields and dollar ease") and 10-year borrowing costs inverted on Monday for the first time since April, a phenomenon that often heralds economic recession.

The latest sell-off in global [bond markets](https://www.financedigest.com/stocks-up-bond-yields-fall-as-markets-mull-a-fed-policy-pause.html "Stocks up, bond yields fall as markets mull a Fed policy pause") came after a substantially higher-than-expected U.S. CPI print on Friday hurt investors, who sold both bonds and equities, and quashed [expectations that policymakers were starting to gain the upper hand in capping soaring prices](https://www.financedigest.com/ecb-survey-shows-rising-inflation-expectations-despite-energy-price-falls.html "ECB survey shows rising inflation expectations despite energy price falls").

The inflation reading unnerved [investors and depressed world stocks](https://www.financedigest.com/influx-of-one-time-investors-swapping-stocks-for-bricks-and-mortar-reports-agency.html "Influx of ‘one-time’ investors swapping stocks for bricks and mortar reports agency") to the brink of a fresh 2022 low, as markets ratcheted up expectations on where U.S. interest [rates would peak](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked") next year to around 4% from around 3% less than two weeks ago.

Where benchmark policy rates peak in the United States and other major economies is the trillion-dollar question for investors, as that determines equity valuations and how far [central banks](https://www.financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-banks.html "Stock pickers reckon it’s time to move on from central banks") are from attaining those objectives.

Multiple negatives have been thrown at the market in the last three trading days, but topping the list are worries over a need for a more aggressive policy response from central banks feeding into already fragile global growth worries,” said Stephen Innes, a managing partner at SPI [Asset](https://www.financedigest.com/britains-post-brexit-asset-management-revamp-eyes-liquidity-tokenisation.html "Britain’s post-Brexit asset management revamp eyes liquidity, tokenisation") Management.

By [late morning in New York](https://www.financedigest.com/stellantis-unveils-ram-ev-pickup-to-debut-late-in-2024-at-new-york-auto-show.html "Stellantis unveils Ram EV pickup, to debut late in 2024, at New York auto show"), the Dow Jones Industrial Average had plunged 815.94 points, or 2.6%, the S&P 500 had dived 138.65 points, or 3.55%, and the Nasdaq Composite had shed 481.89 points, or 4.25.

[European shares fell to their lowest in more than three months](https://www.financedigest.com/european-shares-hit-nine-month-high-dollar-wobbles-after-powell-remarks.html "European shares hit nine month high, dollar wobbles after Powell remarks") on Monday, and the euro STOXX volatility index – an equivalent in Europe of the U.S. VIX index, also known as [Wall Street’s](https://www.financedigest.com/asian-stocks-edge-up-before-u-s-jobs-data-defying-wall-street-selloff.html "Asian stocks edge up before U.S. jobs data, defying Wall Street selloff") fear gauge – surged to a one-month high.

Benchmarks in many countries including the Netherlands have suffered declines of more than 20% from a recent closing peak.

An index of [world stocks](https://www.financedigest.com/world-stocks-cling-to-upbeat-mood-dollar-stalls.html "World stocks cling to upbeat mood, dollar stalls") tumbled 3.5%.

This is happening in spite of the actions that have so far been taken by [central banks…](https://www.financedigest.com/governments-and-central-banks-risk-inflation-bank-of-england-has-done-its-bit-now-the-politicians-turn.html "Governments and central banks risk inflation, Bank of England has done its bit, now the politicians’ turn"), stoking fears that they will have to go harder and faster if inflation is to be tamed, the cost of which is being increasingly seen as lower growth and potentially recession,” Equiti Capital chief macro strategist Stuart Cole said.

With inflationary signs showing no signs of abating and new mass COVID-19 [testing in China](https://www.financedigest.com/uk-not-planning-covid-testing-for-travellers-from-china.html "UK not planning COVID testing for travellers from China") sparking concerns about more crippling lockdowns and squeezed global supply chains, investors cut exposure to risky assets across the board.

Credit default swap spreads blew out to multi-year highs and cryptocurrencies including [Bitcoin and ether](https://www.financedigest.com/cryptoverse-ether-snaps-at-bitcoins-heels-in-race-for-crypto-crown.html "Cryptoverse: Ether snaps at bitcoin’s heels in race for crypto crown") posted double-digit losses.

European [bonds were also caught up in the broadening debt market](https://www.financedigest.com/us-stock-futures-bonds-rally-as-markets-flirt-with-fed-pause.html "US stock futures, bonds rally as markets flirt with Fed pause") selloff after a hawkish European Central Bank meeting last week, with two-year German bond yields rising above 1% for the first time in more than a decade. \[GVD/EUR\]

Money [markets are pricing in a total of almost 250 bps in rate hikes](https://www.financedigest.com/instant-view-ecb-sticks-with-big-rate-hike-even-as-bank-fears-roil-markets.html "Instant View: ECB sticks with big rate hike even as bank fears roil markets") by the U.S. Federal Reserve to the [end of the year](https://www.financedigest.com/hedge-funds-set-to-end-2021-with-inflows-for-first-time-in-three-years.html "Hedge funds set to end 2021 with inflows for first time in three years") with only five meetings remaining. Some investment [banks are pencilling in a 75-basis-point hike](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") at a policy meeting this week.

Expectations of even more aggressive [rate hikes](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise") from global central banks have spurred investors to ramp up their bearish bets on global growth. This is a big week for central banks with the Fed, Bank of England and [Swiss](https://www.financedigest.com/swiss-regulator-monitoring-banks-and-insurers-after-svb-collapse.html "Swiss regulator monitoring banks and insurers after SVB collapse") National Bank holding policy meetings.

Multiple indicators of growth in markets slumped on Monday from technology shares in [Hong Kong](https://www.financedigest.com/screening-of-winnie-the-pooh-horror-film-cancelled-in-hong-kong.html "Screening of ‘Winnie the Pooh’ horror film cancelled in Hong Kong") to the Australian dollar, as investors fled to the perceived safe haven of the U.S. dollar.

The dollar hovered near a peak of 135.22 yen, its highest since October 1998, buoyed by a rise in Treasury yields that continued into Tokyo trading, while the British pound was down more than 1% after [data showed the UK economy](https://www.financedigest.com/stocks-yields-fall-data-suggests-u-s-economy-cooling.html "Stocks, yields fall; data suggests U.S. economy cooling") unexpectedly shrank in April. \[GBP/\]

The broader dollar index, which measures the value of the greenback against its rivals, jumped 0.57% to within [striking distance of a 2003 high hit](https://www.financedigest.com/uks-december-shopper-numbers-defy-inflation-and-rail-strikes-hit.html "UK’s December shopper numbers defy inflation and rail strikes hit") last month.

[CHINA LOCKDOWNS](https://www.financedigest.com/burberry-held-back-by-china-lockdowns-and-u-s-weakness.html "Burberry held back by China lockdowns and U.S. weakness")

The focus in [Asia was on the risk](https://www.financedigest.com/asia-shares-weigh-china-risks-yen-hits-6-month-high.html "Asia shares weigh China risks, yen hits 6-month high") of fresh coronavirus lockdowns, with Beijing’s most populous district of Chaoyang announcing three rounds of mass testing to quell a “ferocious” outbreak that emerged at a bar.

Chinese [blue chips fell 1.17% and Hong Kong’s Hang Seng suffered](https://www.financedigest.com/bezos-blue-origin-suffers-rocket-failure-during-uncrewed-mission.html "Bezos’ Blue Origin suffers rocket failure during uncrewed mission") a 3.39% slide. Japan’s Nikkei slumped 3.01% and [South Korea’s](https://www.financedigest.com/ukraine-asks-for-south-korea-cybersecurity-aid-amid-russia-invasion.html "Ukraine asks for South Korea cybersecurity aid amid Russia invasion") Kospi shed 3.52%.

Anyone trying to pick the bottom in China’s growth and equity markets on the basis that China was ‘one and done’ on lockdowns is naive,” said Jeffrey Halley, [senior market](https://www.financedigest.com/adnami-appoints-senior-executives-in-french-and-german-speaking-markets-as-hiring-spree-continues.html "Adnami appoints senior executives in French and German speaking markets as hiring spree continues") analyst at OANDA.

[China’s growth shares](https://www.financedigest.com/asian-shares-muted-as-investors-fret-over-china-reopening.html "Asian shares muted as investors fret over China reopening") sagged, with tech giants listed in Hong Kong slumping 4.45%. Index heavyweights Alibaba, Tencent and Meituan were each down between 4% and 6%.

Leading cryptocurrency bitcoin sank 14% to the [lowest since](https://www.financedigest.com/us-european-shares-rise-as-earnings-mixed-euro-dives-to-lowest-since-2017.html "US, European shares rise as earnings mixed; euro dives to lowest since 2017") December 2020 at $22,867.

Meanwhile, [crude oil](https://www.financedigest.com/oil-near-flat-as-us-crude-stock-draw-contends-with-economic-concerns.html "Oil near flat as US crude stock draw contends with economic concerns") prices dropped, with Brent crude futures down 2% at $119.35 a barrel as growth concerns dominated sentiment.

![CPI and wage growth](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/135-1736815650568-compressed.jpg)

GRAPHIC: CPI and wage growth – https://graphics.reuters.com/USA-STOCKS/gkvlgznropb/cpiwages.png

(Reporting by Saikat Chatterjee; Editing by Emelia Sithole-Matarise, Jan Harvey and Mark Heinrich)


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