Global investors lick their wounds after a hot week and prepare for more turbulence

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Last Updated on September 26, 2022 by Bitfinsider

Following a historic week in which central banks and governments intensified their fight against inflation, international investors are bracing for more market chaos.

There were omens of unusual times everywhere. While Japan intervened to support the yen for the first time since 1998, the Federal Reserve announced its third consecutive 75 basis point rate hike. In response to the country’s new finance minister unleashing unprecedented tax cuts and massive increases in borrowing, the British pound hit a new 37-year low versus the dollar.

Equities fell everywhere. Bonds fell to their lowest level in years as investors rebalanced their portfolios to a world of persistent inflation and rising interest rates, and the Dow Jones Industrial Average almost joined the S&P 500 and Nasdaq in a bear market.

Above it all stood the US dollar, which shot to its highest level versus a basket of currencies in 20 years, helped in part by investors seeking refuge from the volatile market swings.

Few people are currently looking for deals because of the selloffs across all asset sectors. In fact, many people think that things will only grow worse because of the increased possibility of a global recession brought on by tighter monetary policy around the world.

The effects of the frenetic week compounded long-term trends for stocks and bonds, which led to price declines for both asset classes. The uncertain future, however, meant that they were still too expensive for some investors.

On Friday, Goldman Sachs analysts reduced their year-end goal for the S&P 500, the main US stock index, from 4,300 to 3,600. Earlier, the index was at 3,693.23.

Bond yields, which follow prices in the opposite direction, increased everywhere. The yield on the standard 10-year US Treasury note reached its highest point in more than 12 years, and the yield on two-year German bonds surpassed 2% for the first time since late 2008. According to Refinitiv data, five year gilts in the UK increased by 50 basis points, which is the largest one-day increase since at least late 1991.

Investors worry that things would deteriorate before improving.

Riddell predicts that by the middle of next year, the global economy would be much weaker because monetary policy usually takes time to take effect.

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