Australia

Australian shares are set to edge higher following a dip on Wall Street as investors continue to digest worries of a global economic downturn.

ASX futures were up 14 points or 0.21% at 6480 as of 7:00am on Tuesday, pointing to a slight gain at the open.

US stocks continued to slide Monday, reflecting investors' worries about the state of the global economy.

The major indexes opened lower, rose in morning trading, and were down again by midday. The selloff accelerated in afternoon trading. The whipsawing signalled investors' uncertainty about where the economy is headed and how to discern policymakers’ attempts to get it back on track.

The S&P 500 fell 0.6% during afternoon trading, on pace to hit a new 2022 low. The Nasdaq Composite gained less than 0.1% and the Dow Jones Industrial Average dropped 0.8%, or about 246 points, to about 29347.

The Dow, which already closed Friday at its lowest level of the year, was on pace to enter bear market territory. Wall Street defines that as a drop of 20% or more from a recent high.

Turbocharged volatility has rattled everything from stocks to currencies to commodities in recent weeks. Central banks around the world, including in the US, are trying to play catch up with inflation by tightening monetary policy. That has forced investors to reckon with the end of a decades-long era of low interest rates.

The stock market's swoon is a contrast to its short-lived summer rally when investors were hoping that the Federal Reserve would start cutting interest rates next year and that stocks were nearing a bottom. However, Fed Chairman Jerome Powell poured water on those bets during his August speech in Jackson Hole, Wyo., where he reiterated the central bank's plan to keep raising rates to fight inflation.

"My worry is there is a sense that the Fed's going to raise rates until it breaks the economy, or something breaks," said Paul Donovan, chief economist at UBS Global Wealth Management.

In commodity markets, Brent crude oil slipped 2.66% to $US83.86 a barrel, gold edged down 1.33% to US$1,622.02.

In local bond markets, the yield on Australian 2 Year government bonds rose to 3.47% while the 10 Year fell to 3.98%. Overseas, the yield on 2 Year US Treasury notes rose to 4.34% and the yield on the 10 Year US Treasury notes was down at 3.92%.

The Australian dollar hit 64.68 US cents down from the previous close of 65.31. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies edged up to 105.11.

Asia

Chinese shares ended mixed amid worries over the government's prolonged zero-Covid policy. The benchmark Shanghai Composite Index fell 1.2% to 3051.23, the Shenzhen Composite Index slipped 0.7% to 1949.00 and the ChiNext Price Index gained 0.8% to 2323.05. The yuan's movements will be closely watched after the PBOC said Monday that it would reimpose the 20% risk reserve requirement ratio for FX derivative sales, with effect from Sept. 28. "The move likely signals the PBOC's discomfort with the recent rapid depreciation of the CNY amid continued strengthening of the USD," Goldman Sachs analysts say in a note. Bank stocks were lower, with Agricultural Bank of China declining 1.0% and Bank of China off 1.3%.

Hong Kong stocks were slightly higher in morning trading, picking up from opening losses and showing signs of recovery from last week's broad downturn. The benchmark Hang Seng Index edged up 0.1% to 17950.59. Macau casino operators lead gains after the city said it plans to resume accepting group tours from mainland China soon. Sands China jumped 14% and Galaxy Entertainment gained 7.4%. But Ping An Securities analysts warn that risk-averse sentiment is likely to persist in the near term, given the global high interest-rate environment. While the market's valuations are cheap, a clear path to recovery remains uncertain, they say.

Japanese shares ended broadly lower, dragged by sharp declines in auto and energy stocks, as concerns persisted over policy tightening by major central banks and the economic outlook. Nissan Motor dropped 5.7% and Inpex Corp. lost 9.9%. The Nikkei Stock Average fell 2.7% to 26431.55. Investors are closely watching the yen and policy-related comments from government officials. USD/JPY was at 143.88, compared with 143.34 late Friday in New York. The yield on the 10-year Japanese government bond rose one basis point to 0.245%.

Europe

European stocks dropped after Asian losses and ahead of an expected lower US open. The pan-European Stoxx Europe 600 fell 0.6% and the French CAC 40 and German DAX backtracked about 0.1%.

In London, the FTSE 100 retreated 0.7% despite the sterling's slump following Friday's controversial U.K. government budget statement.

"Heavy selling across Asian markets meant the week has begun on a negative note for stocks, but the dramatic falls in the pound have commanded most of the attention," IG analysts write. "Talk of an emergency Bank of England hike is now widespread," they say.
The Pound sterling may struggle to recover meaningfully against the dollar until the US currency's rally loses steam, Societe Generale says. "I didn't think we would go below GBP/USD 1.10, but sterling's capacity for overshoot is well understood," SocGen forex strategist Kit Juckes says in a note.

he divergence between GBP/USD and the yield spread of U.K. government bonds and U.S. Treasuries highlights the loss of confidence in U.K. policy and is even more dramatic than in March 2020 when the Federal Reserve cut interest rates, Juckes says. However, easier Fed policy or any coordinated policy move to stop the dollar's rise is unlikely, he says.

North America

U.S. stocks continued to slide Monday, reflecting investors' worries about the state of the global economy.

The major indexes opened lower, rose in morning trading, and were down again by midday. The selloff accelerated in afternoon trading. The whipsawing signalled investors' uncertainty about where the economy is headed and how to discern policymakers’ attempts to get it back on track.

The S&P 500 fell 0.6% during afternoon trading, on pace to hit a new 2022 low. The Nasdaq Composite gained less than 0.1% and the Dow Jones Industrial Average dropped 0.8%, or about 246 points, to about 29347.

The Dow, which already closed Friday at its lowest level of the year, was on pace to enter bear-market territory. Wall Street defines that as a drop of 20% or more from a recent high.

Turbocharged volatility has rattled everything from stocks to currencies to commodities in recent weeks. Central banks around the world, including in the U.S., are trying to play catch up with inflation by tightening monetary policy. That has forced investors to reckon with the end of a decades-long era of low interest rates.

The stock market's swoon is a contrast to its short-lived summer rally when investors were hoping that the Federal Reserve would start cutting interest rates next year and that stocks were nearing a bottom. However, Fed Chairman Jerome Powell poured water on those bets during his August speech in Jackson Hole, Wyo., where he reiterated the central bank's plan to keep raising rates to fight inflation.

"My worry is there is a sense that the Fed's going to raise rates until it breaks the economy, or something breaks," said Paul Donovan, chief economist at UBS Global Wealth Management.

Last week, the Fed offered up another supersize rate increase and signalled that additional large increases are likely even at the risk of a recession. That sparked fresh concerns among already-nervous investors.

"We are worried the Fed's current trajectory is more aggressive than necessary," said Jeremy Schwartz, global chief investment officer at WisdomTree Asset Management.

The Fed's higher rates are rippling to all corners of the economy. Mortgage rates are twice as high as they were a year ago, and while inflation overall remains stubbornly high, the higher rates have indeed cooled the housing market. Home prices continue to notch year-over-year gains, but they are falling month to month. Mr. Schwartz said that is a sign that inflation could be slowing.

US government-bond prices fell, pushing yields higher yet again. The yield on 10-year Treasurys rose to 3.873%. It stood at 3.695% on Friday, already near the highest in more than a decade.

"The market is finally coming back to reconciling the steps that the Fed is indeed going to take," said Brando Reyna, portfolio manager for Novare Capital, a Charlotte-based investment adviser managing $1.3 billion in assets. "They [Fed] said, 'Our biggest concern is inflation,' and I agree with them 100%."