Turn on Javascript in your browser settings to better experience this site.

Don't show this message again

This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more

Global markets saw a sell-off this week on fear of rising interest rates.

Week in review: Down time

This week: Global markets sell-off, fears heighten on U.S. interest rates and UK oil stocks slide.

Global equity markets took a sharp turn for the worse this week. The sell-off was widespread. Global indices tumbled on growing nervousness about U.S. monetary policy, the trade war with China and the lofty valuations at which many growth stocks had been trading. High-yield bonds and oil joined the rout too.

The main factor in the global slump was the threat of rising U.S. interest rates. The U.S. economy is in strikingly good health, stoking fears that it could overheat. With unemployment now at levels not seen since the 1960s, investors are concerned that accelerating wage growth will lead to higher inflation.

That in turn could lead to interest rates rising at a faster pace than previously expected –meaning that companies will find it more expensive to fund their growth.

Yields on U.S. Treasuries rose in response to the prospect of higher rates. The yield on the benchmark 10-year bond reached a seven-year high on Wednesday.

This week: Global markets sell-off, fears heighten on U.S. interest rates and UK oil stocks slide.

Unusually, as the stock market plunged, bond prices continued to decline. Towards the end of the week, Treasury yields began to fall back as investors responded to the attractions of higher risk-free returns. Gold was a notable beneficiary of the spike in risk aversion. The gold price was up around 1.7% over the week.

Going loco?

Investors were further unnerved by open hostility between the White House and the U.S. Federal Reserve (Fed). Describing the recent rate rises as “ridiculous,” President Trump directed his ire towards the U.S. central bank on Wednesday.

“The Fed is going loco,” he said.

By Thursday’s close, the S&P 500 had fallen by 5.4%. More than two-thirds of its constituents have now fallen 10% or more from their highest point of the past year.

Among these are many of the large technology stocks that have led the U.S. market’s charge in 2018. Amazon, Google and Facebook came under heavy selling pressure, as investors assessed the higher costs they may face from higher wages and greater security requirements after recent data-theft scandals.

Oil not so slick

In the UK, the FTSE 100 also experienced a sharp correction, sliding to its lowest level for six months. Oil stocks were among the heaviest fallers. The price of Brent crude fell back from the four-year high of the previous week.

Against this, there was some optimism that the UK government and the European Union (EU) were close to agreeing a Brexit deal. But this was insufficient to offset the global pressures bearing down on the FTSE. It ended Thursday down 4.5% for the week.

“Gimme shelter”

Nor was there much shelter from the storm in the rest of the world. The FTSE World Europe ex UK index was down 4.6% by Thursday’s close. In contrast to the U.S. , Europe’s technology stocks proved relatively resilient.

Excitement about corporate activity somewhat offset global concerns. Nevertheless, all sectors declined.

Asian shares were hit hard too. As Chinese investors returned from the long National Day holiday, the Shanghai Composite tumbled to its lowest level for four years.

The central bank’s decision to reduce the reserve requirement for banks was outweighed by fears about the impact of U.S. tariffs on a slowing domestic economy.

Meanwhile, in Japan, the Topix hit a four-week low. There was a particularly pronounced sell-off in companies that were heavily exposed to China.

And finally…

We have a lot in common with baboons, with whom we share around 94% of our DNA. Like us, they’re social primates with a strong sense of kinship, elaborate hierarchies and pronounced personalities.

There are considerable differences too. We have bigger brains and a better grasp of technology. They have the edge in agility and brightly colored posteriors.

But with their gaping snouts, yellow fangs and a diet that includes insects and lizards, baboons aren’t commonly associated with oral hygiene. But dental care seems to be another area where our snouted cousins put us to shame.

Hamadryas baboons at Paignton Zoo in Devon have been filmed flossing their teeth. They used bristles from brooms to extract obstinate fragments of food.

This behavior appears to be widespread, more so than the low flossing rates that our dental practitioners habitually lament. If they can’t get bristles, baboons simply pluck a hair from the pelt of a friend and start flossing away with that. It’s a procedure human dentists don’t generally recommend.

Important Information

Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).

Trading in commodities entails a substantial risk of loss.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.

Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index.

Companies mentioned for illustrative purposes only and should not be taken as a recommendation to buy or sell any security. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list.

ID: US-121018-74687-1