The global financial market is engulfed in interest rate fears from the United States.
The stock price of Alphabet, Google’s parent company, plummeted 9.51%, evaporating 216 trillion won in market capitalization in a day, causing the U.S. stock and bond markets to plummet, the value of the dollar to rise, and the foreign exchange market to shake up. The key cause of market fear is the surge in long-term government bond interest rates. The prospect that the U.S.’s ‘growth alone’, geopolitical conflicts, and expanding fiscal deficit will push interest rates up for a long time is increasing market anxiety.
On the 25th (local time) at the New York Stock Exchange (NYSE), the Standard & Poor’s (S&P) 500 index fell 1.43% from the previous day and closed at 4186.77, below the psychological resistance line of 4200. The Nasdaq index fell 2.43% from the previous day, showing the largest one-day drop since February. Accordingly, Asian markets are also falling, with the KOSPI and Japan’s Nikkei index each falling around 2% on the 26th.
In the U.S. stock market, the stock price of Alphabet, Google’s parent company, plummeted more than 9.51%, evaporating $160 billion (216 trillion won) in market capitalization. This is the largest market capitalization decline in Google history. Although the third quarter (July-September) sales released the previous day did well, growing by 11%, the cloud division performed in contrast to its competitor Microsoft (MS), which showed good performance by falling below expectations, which was the starting point for the stock price plunge.
Above all, it appears that the market’s distrust in the performance of tech companies, which are sensitive to interest rates, has increased. Semiconductor stock prices also faltered, with Amazon falling 5.58% and Nvidia falling 4.31%. On this day, the Philadelphia Semiconductor Index also fell 4.31%. Apple (-1.35%) and Tesla (-1.89%) also showed declines.
The value of the dollar also rose, with the yen-dollar exchange rate exceeding the 150 yen level again in the New York foreign exchange market on this day, hitting the lowest value of the yen against the dollar in more than a year. The dollar index, which represents the value of the dollar against major countries’ currencies, also jumped to 106.53, up 0.24% from the previous day.
The factor that causes seizures in the financial market is the interest rate on long-term U.S. government bonds. On Monday, the 22nd, the interest rate on U.S. Treasury bonds, which exceeded 5% during the day, retreated to the 4.8% level. On this day, it rose again by 0.12 percentage points to 4.96%, approaching 5%.
Even though U.S. mortgage interest rates hit the highest in 23 years, new home sales last month exceeded market expectations, supporting the strong U.S. economy. According to the U.S. Department of Commerce, the number of new home sales last month was 759,000 (seasonally adjusted annual rate), up from 676,000 in August and much higher than the 680,000 expected by economists.
Although new home sales tend to be highly volatile from month to month, the analysis shows that the market has reacted sensitively to this indicator due to concerns about prolonged interest rates due to the strong U.S. economy. The market estimate for the US third quarter gross domestic product (GDP) growth rate, which will be announced on the morning of the 26th US time, is 4.7%, which is higher than the 2.1% in the second quarter. The Atlanta Federal Reserve Bank’s ‘GDP Now’ model projects a growth rate of up to 5.4%, raising concerns that America’s independent growth will lead to a prolonged period of high interest rates.
At the Future Investment Initiative held in Saudi Arabia the day before, JP Morgan Chairman Jamie Dimon and BlackRock CEO Larry Fink expressed strong dissatisfaction, saying that the Biden administration’s expansion of government spending and fiscal deficit are stimulating U.S. demand and putting upward pressure on inflation. It was also expressed. Chairman Dimon said, “The Federal Reserve’s economic forecast from 18 months ago was 100% wrong. “Fiscal spending is higher than ever, and there is a sense of omnipotence that central banks and governments can manage it all,” he said, raising questions about the government and the Federal Reserve’s ability to respond to crisis management.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.