Global Stock Markets Plunge Sharply Due to Possible Further Interest Rate Hikes

On Wall Street, the Dow Jones fell 1.6 percent last week to 33,127 points, while the S&P 500 slid 2.4 percent to 4,224 points, and the Nasdaq index dropped 3.2 percent to 12,983 points.

The rise in yields on U.S. government bonds negatively impacted the stock market. On Friday, the yield on 10-year bonds broke above the 5 percent level for the first time in 16 years. This could affect mortgage rates and auto loan rates, as well as credit card interest rates…

Additionally, higher bond yields reduce the attractiveness of stocks as they offer good returns without any risk to investors.

Investors were also shaken by U.S. Federal Reserve Chairman Jerome Powell, who stated at a business conference that central bankers are cautious regarding monetary policy after last year’s aggressive rate hikes, but that rates could be further increased due to a strong economy and labor market.

– Investors hoped Powell would signal that the Fed has finished raising rates, but he practically indicated that further rate hikes will be necessary if inflation remains elevated, says Oliver Pursche, Vice President at Wealthspire Advisors.

Investors are also risk-averse due to fears of escalating conflict between Israel and the Palestinians. In such circumstances, investors retreat from riskier investments, such as stocks, and seek refuge for their capital in investments considered safer in uncertain times, such as gold. As a result, the price of an ounce of gold is hovering near a two-month high, around $1,980.

For all these reasons, investors were not encouraged by quarterly business results, although most companies in the S&P 500 index that have reported so far have achieved higher earnings than expected.

European stock markets also saw sharp declines last week. The London FTSE index fell 2.6 percent to 7,402 points, while the Frankfurt DAX plummeted 2.5 percent to 14,798 points, and the Paris CAC dropped 2.7 percent to 6,816 points.

Dollar Weakens Against Basket of Currencies, Euro Strengthens

In the currency markets, the value of the dollar against a basket of currencies fell last week as investors feared intervention by the Japanese central bank, given that the dollar exchange rate broke above the psychologically important level of 150 yen.

The dollar index, which tracks the value of the U.S. dollar against six major world currencies, weakened by 0.5 percent last week to 106.16 points. It slid 0.8 percent against the euro, bringing the euro price to $1.0595.

However, the dollar exchange rate rose against the Japanese currency by 0.2 percent to 149.85 yen. On Friday, at one point, the dollar exchange rate broke above the 150 yen level, but then fell as investors feared intervention by Japanese authorities who do not want the yen to weaken too quickly.

– I think the dollar would be stronger if there were no risk of intervention by Japanese monetary authorities. Given the situation in the economies and the level of yields, the dollar should strengthen, and I think it is only a matter of time before that happens, says Adam Button, currency analyst at ForexLive.

The U.S. Federal Reserve has drastically raised interest rates in the past year and a half to curb high inflation, while the Japanese central bank continues to pursue a very accommodative monetary policy, as inflation in Japan is not a significant threat.

Speculation regarding interest rates, as well as new economic indicators, will continue to determine how the value of the dollar moves against other major world currencies.