Global stock markets tumble on fears of hawkish central bank hikes

LONDON, Feb 22 (Reuters) – Global stocks traded at their lowest level in more than a month on Wednesday, and U.S. Treasury yields were the highest since November as renewed fears about inflation and interest rates weighed on market sentiment.

MSCI’s broadest index of global shares (.MIWD00000PUS) fell 0.4% on Jan. fell to its lowest level since 20, while a broader index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.3% to close on Jan.

Europe’s STOXX 600 stock index (.STOXX) fell 0.4% in early trade. Wall Street futures indicated the S&P 500 stock index would be 0.2% higher after falling 2% in the previous session.

A surprisingly upbeat set of data in recent weeks has found the cross-asset rally that began last October to be based on a cooling global economy.

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Wall Street posted its worst daily performance of the year on Tuesday, as investors reacted to an unexpectedly strong reading from S&P Global’s composite PMI, which suggested stronger business conditions would continue to fuel inflation.

“The market is over-optimistic,” said Luca Paolini, chief strategist at Pictet Asset Management.

“Economic data is more resilient than we all thought (it would be) and we should embrace that.”

The MSCI All-Country Stock Index, which rose 7.1% in January, has fallen 2% so far this month, depressed by the U.S. jobs report and rate fears, even as economists upgraded their forecasts for economic growth in the U.S. as well. Eurozone this year.

The yield on the 10-year U.S. Treasury, which moves inversely to its price, fell 2 basis points (bps) to 3.953% on Wednesday after hitting its highest since November.

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That replaces a strong showing for Treasuries earlier in the year, when bonds rallied to reflect challenges to deflation. The benchmark 10-year yield has risen about 60 bps from its January low.

Swaps markets expect the Fed, the world’s most influential central bank, to raise its funds rate to 4.75% from the current 4.5%.

New Zealand’s central bank raised interest rates by 50 bps on Wednesday, to a more than 14-year high of 4.75%.

“The market is concerned that central banks will need to raise interest rates a lot more to control inflation,” said Kerry Craig, global market strategist at JP Morgan Asset Management.

Geopolitical tensions also weighed on markets on Wednesday, after Russia’s Vladimir Putin warned the West over Ukraine by suspending its last major nuclear arms control deal with the United States. U.S. Secretary of State Anthony Blinken said Putin’s move was “very unfortunate and irresponsible.”

The dollar index was flat but on track for a 2% gain so far in February, its first monthly gain in five.

Brent, the global oil benchmark, was down 0.8% at $82 a barrel.

Naomi Rovnik reports; Additional reporting by Selena Li; Editing by Bradley Perrett and Kim Coghill

Our Standards: Thomson Reuters Trust Principles.

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