Global stocks plunge as US bond yields surge to 16-year highs, raising concerns about prolonged higher interest rates by the Federal Reserve.
Treasury yields skyrocketed after new data revealed unexpectedly increased job openings in the US, indicating the resilience of the job market amidst rising interest rates. Economists had predicted that job openings would remain stagnant.
The surge in job openings fueled investor worries that the Federal Reserve will have to maintain elevated interest rates to combat inflation. As a result, global bond markets saw a sell-off, pushing 10-year and 30-year yields to levels not seen since 2007.
In addition, the average 30-year fixed mortgage rate soared to 7.72%, reaching levels unseen since the year 2000.
These sharp increases in US borrowing costs had a negative impact on global stock markets. The Dow Jones Industrial Average experienced its largest one-day decline since March, dropping 1.3% or 430 points to close at 33,002.38. The S&P 500 fell 1.4% to 4,229.45, and the Nasdaq Composite index plunged 1.9% to 13,059.47.
European equity markets also faced a downturn, with the FTSE 100 index in the UK dropping 0.54% to 7,470.16 and the Euro Stoxx 50, which represents blue-chip companies across the eurozone, finishing 1.02% lower.
Traders will be closely monitoring Friday’s non-farms payroll (NFP) report, which provides a monthly measure of US workers in manufacturing, construction, and goods industries. According to Ed Moya, senior market analyst for the Americas at Oanda, if the NFP report does not come in lower than expected, Wall Street is likely to fully incorporate at least one more rate hike by the Federal Reserve before the end of the year.
These concerns about higher interest rates follow recent calls by Federal Reserve officials to combat persistent inflation. Michelle Bowman, a Federal Reserve governor, indicated the need to further raise rates and maintain them at a restrictive level for some time. Similarly, Michael Barr, the Federal Reserve’s vice chair for supervision, predicted that interest rates will have to remain elevated for an extended period to achieve their goals.
In the previous month, the Federal Reserve kept interest rates unchanged within the target range of 5.25% to 5.50%, but hinted at the possibility of a future increase this year.
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