Global Stocks Slip as Concerns Over Economy and Rates Weigh on Rally

Stocks around the world faced a decline on Monday as worries about the global economy and uncertain interest rates dampened the momentum of a strong second-quarter rally.

European markets experienced widespread declines, affecting all industries except banks and energy firms. Notable among the individual movers was Sartorius AG, which saw a 15% drop in its shares after issuing a profit warning that exceeded expectations. Meanwhile, in Asia, Chinese tech companies suffered as hopes for additional stimulus measures were dashed.

Traders are grappling with conflicting sentiments, torn between the allure of the ongoing rally and concerns that it may have run its course, leading to an overbought market. The recent rally on Wall Street has erased more than a year of losses caused by rate hikes, with the S&P 500 index recording five consecutive weeks of gains and surpassing its pre-Fed campaign level. Despite the Federal Reserve’s concerns, inflation appears to be relatively contained, instilling optimism in global markets. However, the situation in Europe remains uncertain, with inflation displaying stickiness.

On a holiday Monday, US stock and bond markets remained closed. Looking ahead, investors are eagerly awaiting Fed Chair Jerome Powell’s semi-annual report to Congress on Wednesday. This week’s lineup of speakers includes James Bullard, the President of the Federal Reserve Bank of St. Louis, as well as representatives from the New York and Chicago branches. Although interest rates were left unchanged at the most recent meeting, policymakers warned of further tightening. Historically, pausing rate hikes after a series of increases has boosted stock prices.

In other developments, short-term borrowing costs in the UK reached 5%, a level not seen since the global financial crisis. This surge in borrowing costs stems from concerns about the inflation outlook and the possibility of more aggressive monetary tightening. Chinese tech giants, including Alibaba Group Holding Ltd, JD.com Inc., and Baidu Inc., experienced declines of over 3%, dragging the Hang Seng Tech index down by as much as 2.9%. Investor hopes for substantial stimulus measures were dashed after China’s cabinet refrained from announcing any specific proposals, fueling worries about a slowing economy and unsettling those who had driven up Chinese equities in anticipation of comprehensive support.