A global stocks selloff deepened on Monday as mounting concerns grew that the Federal Reserve might be lagging in providing adequate policy support for a slowing US economy, prompting investors to seek refuge in bonds. Friday’s data revealed that US nonfarm payrolls recorded one of the weakest figures since the pandemic, while the unemployment rate unexpectedly climbed above the Fed’s year-end forecast, triggering a closely watched recession indicator. This heightened anxiety over the US economy’s health sent Treasury yields lower, with spreads on investment-grade dollar bonds in Asia poised to widen the most in 22 months.
Bond traders have consistently miscalculated the direction of interest rates since the end of the pandemic, often overshooting in both directions. As signs of US economic deterioration emerged, global bonds erased their losses for the year, fueling demand for fixed-income securities.
The sudden appreciation in funding currencies, such as the yen and China’s yuan, has disrupted the carry trade, which typically involves borrowing at lower rates to invest in higher-yielding assets. This unexpected shift has added another layer of complexity for investors navigating the current market environment.
Meanwhile, oil prices fluctuated near a seven-month low as a broader selloff in financial markets countered rising geopolitical tensions in the Middle East. Israel is bracing for potential attacks from Iran and regional militias in retaliation for the assassinations of Hezbollah and Hamas officials, further adding to the uncertainty.
The confluence of these factors underscores the fragile state of global financial markets, with investors closely monitoring upcoming economic data and central bank communications for signals on future policy direction. As the Federal Reserve grapples with balancing inflation control and economic support, market participants remain on edge, weighing the implications of each new data release and geopolitical development.