World stocks fall as investors fret over risk of more aggressive rate hikes

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Investors are waking up to the reality that rates may stay higher for longer even as recession risk grows

An employee passes share price information displayed on an electronic ticker board inside the London Stock Exchange Group’s offices in London, the UK. Picture: BLOOMBERG VIA GETTY IMAGES/LUKE MACGREGOR

European Central Bank board member Isabel Schnabel added to market unease. She warned on Saturday that central banks risk losing public trust and must act forcefully to curb inflation, even if that drags their economies into a recession. London markets were closed for a holiday, while MSCI’s world equity index fell 0.7% to a one-month low.

Investors ramped up US and eurozone rate hike bets, with markets pricing in a greater chance of 75 basis point hikes from the Fed and ECB in September. Much might depend on what US August payrolls figures show this Friday. Analysts are looking for a moderate rise of 285,000 after July’s blockbuster 528,000 gain.As investors hunkered down for front-loaded rate hikes, key gauges of equity market volatility shot up.

Two-year US yields surged to around 3.49%, the highest since late 2007 and far above the 10-year at 3.13%. Yields also jumped across Europe.

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