Global stocks extend falls into new month on darkening outlook

Global stocks dropped and the dollar jumped after fresh Covid-19 lockdowns in China and gloomy data from the manufacturing powerhouse compounded investor worries that the global economy is faltering.

Wall Street’s S&P 500 was down 0.9 per cent by the early afternoon in New York, leaving it on track to close down for a fifth day in what would be its longest losing streak since mid-July.

The latest bout of equity selling highlights how many investors are worried that surging energy prices will weigh on consumers and businesses worldwide, just as central banks are raising borrowing costs in an attempt to damp down blistering inflation.

A jolt of geopolitical angst also weighed on markets. The tech-heavy Nasdaq Composite dropped 2 per cent, with Nvidia sliding almost 12 per cent after US officials told the chipmaker to stop selling to Chinese companies two of its chips designed for artificial intelligence work. Other semiconductor groups also tumbled, with Advanced Micro Devices losing almost 7 per cent. Europe’s Stoxx 600 ended the day 1.8 per cent lower.

Traders darted into the US dollar, seen as a shelter during times of market tumult, sending a measure of the greenback against half a dozen peers rallying as much as 1 per cent to a new 20-year high. Other currencies slumped against the dollar, with the pound falling as much as 1 per cent to $1.15, the euro falling up to 1.4 per cent to $0.991 and Japan’s yen losing as much as 0.9 per cent to touch ¥140 for the first time since 1998.

Concerns over global growth flared up after Chinese authorities on Thursday moved to lock down the south-western megacity of Chengdu, as officials stick to the country’s zero-Covid policy.

A survey of manufacturers in China also came in worse than expected, with the Caixin manufacturing purchasing managers’ index registering a reading of 49.5 for August, down from 50.4 in July and below expectations of 50.2. Any figure below 50 signals a contraction.

Grace Ng, a JPMorgan economist, said the report raised “concerns of slowing external demand” for products produced in the country’s vast factory sector.

Oil, which is highly sensitive to expectations for global growth, extended a recent fall. Brent, the international benchmark, slipped 3.3 per cent to $92.52 a barrel from a high of more than $105 on Tuesday.

Strong labour market data from the US on Thursday also intensified concerns that the Federal Reserve will continue rapidly raising interest rates in the coming months.

First-time claims for unemployment benefits clocked in at 232,000 for the week ending August 27, according to data from the labour department, significantly lower than estimates of 248,000.

“While still not entirely conclusive due to potential seasonal adjustment difficulties, the recent stabilisation . . . in first-time jobless claims appear to be signalling that the labour market remains vibrant,” said economists at research company Maria Fiorini Ramirez.

US government bonds came under price pressure following the weekly jobless claims data, which are released a day before the highly anticipated monthly employment report.

The yield on the 10-year Treasury note added 0.13 percentage points to 3.27 per cent, while the yield on the two-year note, which closely tracks interest rate expectations, added as much as 0.1 percentage points to 3.55 per cent, hitting a new 15-year high.

Anticipation of tighter monetary policy and a drawn-out recession has already fuelled worries about companies’ financial health, with the gap in the yield between government bonds and high-yield US corporate debt widening in recent weeks.

The spread, reflecting the premium that investors demand for taking on more risk, has climbed from just over 4.2 percentage points in mid-August to 5 percentage points at Wednesday’s close, according to an Ice Data Services index.