Indeed, data released early Thursday that showed US 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 may not like a strong number if it supports the basis for a continuation of aggressive rate hikes, which could further boost the US dollar. 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.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 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.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%.Euro zone money markets were now pricing in a roughly 80% chance of an unprecedented 75 basis point hike, up from 50% earlier in the week.
Moody’s slashed its forecast for the world’s top 20 economies to 2.5% growth from 3.1%, while Fitch acknowledged the euro zone was now set for recession.