Stocks, Dollar up 2-decade high on interest rates

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Stocks, Dollar up 2-decade high on interest rates

LONDON -- Stocks fell again on Monday and the dollar went up to a new two-decade high as investors worried that the global economy is going to slow down due to higher interest rates.

After a bruising session on Friday in which US stocks sold off sharply as another rise in long-dated US Treasury yields unnerved investors, markets were set for a rocky start to the week, with most indexes in the red.

Central banks in the United States, Britain and Australia raised interest rates last week, and investors are bracing for more tightening as policymakers try to get on top of soaring inflation.

There was plenty more for investors to worry about on Monday, aside from tighter financial conditions.

Despite the rise in rates, not all investors think a slowdown is imminent.

The UBS Global Wealth Management strategists believe that investors should position themselves for the reality of inflation, rather than the chance of a recession soon.

Wall Street was looking for another weaker open with the S&P 500 stock futures down 1 percent, while Nasdaq futures fell 0.9 percent. The US 10 year bond yields reached a new 3 -- 1 2 year high of 3.179 percent.

The main emerging market stocks index of MSCI fell to its lowest level since July 2020.

The MSCI World Index fell by 0.5 percent, leaving it not far from the 17 month intraday low on Friday.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.27 percent and Japan's Nikkei 2.53 percent. Chinese blue chips were down 0.8 percent.

Investors are tense ahead of the US consumer price report due on Wednesday. The Federal Reserve is expected to hike by 50 basis points in June despite a slight easing in inflation.

Core prices increased by 0.4 per cent in April, the month-ago rate was accelerating from 0.3 per cent in the previous month, even though the annual pace dips a bit due to base effects.

With investors juggling so many worries, one of the places where they are looking for safety is in the dollar, which is soaring against most other currencies.

The dollar index, which measures the dollar against a basket of currencies, rose by as much as 0.4 percent to 104.19 the latest in a string of 20 year highs.

Sean Callow, senior FX strategist at Westpac, said that risk appetite is fragile and yield spreads continue to suggest further upside on the Dollar Index.

We look for continued demand for DXY the dollar index on dips, with 104 already being probed and still potential for a run towards 107 multi-week. The soaring dollar is hammering other currencies. The euro fell below $1.05 and the Japanese yen fell to its lowest since 2002 Expectations that the Fed will move more aggressively in raising interest rates are supporting the dollar, as there is a sense among investors that the US economy will hold up better than a euro zone hit hard by the fallout from Ukraine.

Interest rates are also rising in the euro zone. On Monday, Germany's 10 year bond yield hit a new highest level since 2014, buoyed by hawkish policymaker Robert Holzmann, who said on Saturday that the European Central Bank should raise interest rates three times this year to combat inflation.

The diary has a lot of Fed speakers this week, which gives them plenty of time to keep up with the hawkish chorus.

Oil prices saw-sawed after the Group of Seven nations committed to banning or phasing out Russian oil imports over time.

Brent dropped 1.07 percent to $111.21 at the end of the day, while US crude dropped 1.16 percent to $108.51.

Gold was down 0.7 percent at $1,869 an ounce, having struggled recently to gain traction as a safe haven.