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Stocks slide, dollar soars as September starts stormy

September kicked off on a stormy note on Thursday, as persistent worries about rising global interest rates and recessions hounded stocks, bonds and oil prices, and vaulted the U.S. dollar to a 24-year high against the yen.


Indeed, data released early Thursday that showed U.S. manufacturing grew steadily in August, as employment and new orders rebounded, was not welcomed by investors, who worried a strong economy strengthens the case for the Federal Reserve to keep raising interest rates in the next few months.


Investors fear that continued monetary policy tightening by central banks in the United States and Europe would scupper the two regional economies, and trigger a recession.


“The US data this week has suggested the Fed still has a lot of work to do to reduce demand sufficiently to bring inflation down,” analysts at ANZ Bank said in a note to clients.


All eyes are now on U.S. August nonfarm payroll data due on Friday. Analysts expect 285,000 jobs were added last month, while unemployment hovered at 3.5%. Investors may not like a strong number if it supports the basis for a continuation of aggressive rate hikes, which could further boost the U.S. dollar.


After dropping over a percent earlier in the day, U.S. stocks reversed by the end of the session to eke out modest gains. The U.S. S&P 500 index climbed 0.3%, the Dow Jones Industrial Average rose 0.5%, while the Nasdaq Composite finished down 0.3%.


Europe’s STOXX share index of 600 companies slid 1.8%, and MSCI’s main world stocks index lost 0.8% to stand at its lowest since mid-July, while Europe’s government bond markets saw more selling after their worst monthly rout in decades.


The bearishness was being fed by the possibility that the European Central Bank will raise its policy rate by a record 75 basis points next week, following Wednesday’s record high inflation reading.


Heavy shelling at Ukraine’s giant Zaporizhzhia nuclear plant rattled nerves, too. Russia had shut its main gas pipe to Europe for maintenance, Washington ordered Nvidia Corp to stop selling high-tech chips to China, while veteran investor Jeremy Grantham warned of an “epic finale” to the stock market “superbubble” inflated by years of cheap money.


“The whole world is now fixated on the growth-reducing implications of inflation, rates, and wartime issues such as the energy squeeze,” Grantham said.


Add to that COVID-19 in China, food and energy crises, demographics and climate change and “the outlook is far grimmer than could have been foreseen,” he added.


The dive for safety saw the dollar advance to a new 24-year high of 140.21 yen in currency markets as investors braced for higher U.S. rates, while expecting anchored Japanese rates to go nowhere anytime soon.


The euro tumbled 1% against a surging dollar to $0.99435, sterling fell 0.7% to $1.15385, while the risk-sensitive Australian and New Zealand dollars drooped to their lowest levels since July.


Hawkish Fed expectations saw Treasury yields hit fresh highs. The yield on benchmark two-year notes jumped to 3.5510% to the highest since late 2007, while the yield on 10-year bonds rose to a high of 3.2970%.

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