LONDON – Shares sank to a 1-1/2 year low on Thursday and the dollar hit its highest in two decades, as fears grew that fast-rising inflation will drive a sharp rise in interest rates that brings the global economy to a standstill.
Those nerves and the still-escalating conflict in Ukraine took Europe's main markets down more than 2 percent in early trade and left MSCI's top index of world shares at its lowest since late 2020 and down nearly 20 percent for the year.
The global growth-sensitive Australian and New Zealand dollars fell about 0.8 percent to almost two-year lows.
Nearly all the main volatility gauges were signalling danger. Bitcoin was caught in the fire-sale of risky crypto assets as it fell another 8 percent to $26,570, having been near $40,000 just a week ago and almost $70,000 just last November.
"We have had big moves," UBS's UK Chief Investment Officer Caroline Simmons, said referring as well to bond markets and economic expectations. "And when the market falls it does tend to fall quite fast."
Data on Wednesday had showed US inflation running persistently hot. Headline consumer prices rose 8.3 percent in April year-on-year, fractionally slower than the 8.5 percent pace of March, but still above economists' forecasts for 8.1 percent .
US markets had whipsawed after the news, closing sharply lower, and futures prices were pointing to another round of 0.2 percent -0.7 percent falls for the S&P 500, Nasdaq and Dow Jones Industrial later.
"We're now very much embedded with at least two further (US) hikes of 50 basis points on the agenda," said Damian Rooney, director of institutional sales at Argonaut in Perth.
"I think we probably were delusional six months ago with the rise of US equities on hopes and prayers and the madness of the meme stocks," he added.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 2.3 percent to a 22-month low overnight. Japan's Nikkei fell 1.8 percent .
Treasuries were bid in both Europe and Asia, especially at the long end, flattening the yield curve as investors braced for near-term hikes to hurt long-run growth – an outcome that would most likely slow or even reverse rate hikes.
The benchmark 10-year Treasury yield had dropped in the US and fell a further 7 bps to 2.8569 percent on Thursday. The gap between the highly rate-rise sensitive two-year yields and 10-year ones narrowed 4.2 bps .
In Europe, Germany's 10-year yield, the benchmark for the bloc, fell as much as 12 bps to 0.875 percent, its lowest in nearly two weeks.
"I think a lot of it is catch up from what happened yesterday, and also there's still a lot of negative sentiment in the US Treasury curve," said Lyn Graham-Taylor, senior rates strategist at Rabobank.
Sell in May
The rates outlook is driving up the US dollar and taking the heaviest toll on riskier assets that shot up through two years of stimulus and low-rate lending.
The Nasdaq is down nearly 8 percent in May so far and more than 25 percent this year. Hong Kong's Hang Seng Tech index slid 1.5 percent on Thursday and is off more than 30 percent this year.
Cryptocurrency markets are also melting down, with the collapse of the so-called stablecoin TerraUSD highlighting the turmoil as well as the selling in bitcoin and next-biggest-crypto, ether.
The Australian dollar fell 0.8 percent to a near two-year low of $0.6879. The kiwi slid by a similar margin to $0.6240, though the euro and yen held steady to keep the dollar index just shy of a two-decade peak.
Sterling was at a two-year low of just under $1.22 as well as economic data there caused worries and concerns grew that Britain's Brexit deal with the EU was in danger of unravelling again due to the same old problem of Northern Ireland's border.
In commodity trade, oil wound back a bit of Wednesday's surge on growth worries.
Brent crude futures fell 2.3 percent to $104.93 a barrel, while highly growth-sensitive metals copper and tin slumped over 3.5 percent and 9 percent respectively. That marked copper's lowest level since October.