Australia

Australian shares are set to edge lower following a dip on Wall Street last week. A wave of selling in financial markets swept across the world on Friday, as nervous investors confronted the possibility of a recession.

ASX futures were down 82 points or 1.2% at 6478 as of 7:00am on Monday, pointing to a slip at the open.

Investors, mulling stubbornly high inflation and unnerved by Russia's attempts to escalate the war in Ukraine, have fled for the exits last week, driving a concurrent selloff in stocks and bonds alike. Bond yields remained near their highest levels in more than a decade as prices tumbled.

The Dow on Friday lost 486.27 points, or 1.6%, to 29590.41, its lowest close since November 2020. The S&P 500 dropped 64.76 points, or 1.7%, to 3693.23. The Nasdaq Composite declined 198.88 points, or 1.8%, to 10867.93.

The sharp selloff last week continues a stretch of turbulence since Federal Reserve Chairman Jerome Powell's speech in Jackson Hole, Wyo., in August. There, he reiterated the central bank's resolve in fighting inflation through a series of interest-rate increases.

The comments helped smash a short-lived summer rally. Moreover, Fed officials project rates rising even more than previously expected, alarming investors who had been wagering on a shift in policy next year. Many worry that the Fed's swift rate increases will tip the U.S. into recession.

"It's been a very difficult week," said Mike Smith, a portfolio manager at Allspring Global Investments. "Everybody's feeling pain."

In commodity markets, Brent crude oil slipped 4.76% to $US86.15 a barrel, its lowest levels since January. Gold edged down 1.63% to US$1,643.94.

In local bond markets, the yield on Australian 2 Year government bonds rose to 3.35% while the 10 Year edged up to 3.90%. Overseas, the yield on 2 Year US Treasury notes rose to 4.2% and the yield on the 10 Year US Treasury notes was up to 3.68%.

The Australian dollar hit 65.31 US. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 104.25.

Asia

Chinese stocks ended lower, extending recent declines after more central banks raised interest rates, fueling concerns about a global recession. The benchmark Shanghai Composite Index declined 0.7% to settle at 3088.37 and the Shenzhen Composite Index fell 1.4% to 1963.69. The tech-heavy ChiNext Price Index lost 0.7% to 2303.91. Industrial companies, including steelmaking suppliers, electric-machinery makers and rubber producers, led losses. Red Avenue New Materials shed 4.9% and Shenzhen Zhaowei Machinery & Electronic dropped 7.3%.

Hong Kong's Hang Seng Index ended 1.2% lower at 17933.27, further weakening from Thursday's close, which was the lowest in almost 11 years. An end to hotel quarantine for inbound travelers announced by the government failed to cheer investors, as sentiment is still weighed by a dimmer economic outlook amid monetary tightening by central banks globally. The Chinese tech sector dragged on the market, with Alibaba Group, Tencent Holdings and JD.com losing 2.8%-3.4%. Among the gainers, Cathay Pacific added 1.0%, while telecom services provider China Mobile gained 1.4%. The benchmark index lost 4.4% for the week.

Europe

European stocks fell last week. The pan-European Stoxx Europe 600 slid 2.3%, dropping to its lowest level since December 2020, the German DAX was down 3.59%, while the French CAC 40 shed 2.3%.

A bond market rout has "upended sentiment," CMC Markets analyst Michael Hewson wrote. "While it would be tempting to blame some weak flash purchasing mangers' index data, the tipping point appears to have been the announcement of the latest U.K. fiscal stimulus plan, which appears to be being treated as a high-risk leap of faith, prompting sharp spikes in yields over concern about surging inflation and recession risk." With an Italian election also looming on Sunday, investors are fleeing risky assets, Hewson said.

In London, the FTSE 100 closed down 2% on Friday after the U.K.'s Chancellor Kwasi Kwarteng outlined a 'mini budget' which included the country's biggest tax cuts since the early 1970s. The pound fell and government bond yields rose following the move.

"The FTSE 100 has also slipped back sharply, dropping below 7,000 for the first time in over six months, with all sectors except healthcare in the red, and energy and basic resources leading the losses, over rising global recession risk," Hewson said.

JD Sports led the fallers, ending down 6.7%, followed by Harbour Energy, down 6.1%, and then NatWest Group, which ended down 6.1%.

North America

A wave of selling in financial markets swept across the globe Friday, with nervous investors forced to again confront the specter of recession. New signs of slowing global growth rocked investments of all sorts. The Dow Jones Industrial Average fell to its lowest level of the year, the dollar surged and short-term Treasury yields jumped.

Investors, mulling stubbornly high inflation and unnerved by Russia's attempts to escalate the war in Ukraine, have fled for the exits this week, driving a concurrent selloff in stocks and bonds alike. Bond yields remained near their highest levels in more than a decade as prices tumbled.

The Dow on Friday lost 486.27 points, or 1.6%, to 29590.41, its lowest close since November 2020. The S&P 500 dropped 64.76 points, or 1.7%, to 3693.23. The Nasdaq Composite declined 198.88 points, or 1.8%, to 10867.93.

The three indexes tumbled for a second consecutive week in a selloff that has dragged down the S&P 500 by 9.2% and the Dow by almost 8%. That marked their worst two-week declines since June. The Nasdaq has fallen more than 10% over the past two weeks, its biggest such decline since March 2020, during the pandemic-induced market crash.

The sharp selloff this week continues a stretch of turbulence since Federal Reserve Chairman Jerome Powell's speech in Jackson Hole, Wyo., in August. There, he reiterated the central bank's resolve in fighting inflation through a series of interest-rate increases.

The comments helped smash a short-lived summer rally. Many investors are bracing for more volatility after the Fed's commitment to combating inflation grew even clearer this week. The central bank on Wednesday approved its third consecutive interest-rate rise of 0.75 percentage point. That raised the benchmark federal-funds rate to a range last seen in early 2008 and continued the most aggressive path of increases in decades.

Moreover, Fed officials project rates rising even more than previously expected, alarming investors who had been wagering on a shift in policy next year. Many worry that the Fed's swift rate increases will tip the U.S. into recession.

"It's been a very difficult week," said Mike Smith, a portfolio manager at Allspring Global Investments. "Everybody's feeling pain." Smith said that rising bond yields have rapidly changed how much investors are willing to pay up for stocks across the U.S. stock market, leading to the sharp swoon.

Business surveys Friday showed economic activity in Europe declined sharply in September, highlighting how growth outside the U.S. has also been knocked off course. Meanwhile, the U.S. dollar is experiencing a once-in-a-generation rally that threatens to worsen the slowdown in global growth and effectively export inflation around the globe.

Central banks around the world, including policy makers in Norway, Switzerland and South Africa, have lifted borrowing costs. The global commitment to policy tightening has further eroded hopes among investors for a soft landing, or only a modest hit to growth instead of a full-blown recession.

"All central banks are singing from the same hymn sheet: They're trying to get on top of inflation no matter what," said Antoine Bouvet, a senior rates strategist at ING. "The Fed set the tone very clearly...they will continue regardless of the economic pain inflicted on the economy."

US companies including auto maker Ford and delivery giant FedEx have issued profit warnings in recent weeks, sparking concerns that inflation and slowing growth are beginning to eat into corporate profits. Earnings have held up better than expected for most of this year, helping underpin markets.