Stocks finished firmly lower again Monday, while the dollar extended its relentless march against its global peers, as investors retreated from risky global markets amid widespread disruption in currencies and increasing concerns of a near-term recession.
An overnight slump in the pound, which briefly dragged the British currency to an historic low of 1.0327 against the dollar on the heels of last week's 'mini-budget' statement from the new Conservative government, was echoed by fresh moves to the downside for the euro, which hit a 20-year low of 0.9632 against the U.S. dollar, and threats of currency intervention from both China and Japan.
The dislocation follows last week's Federal Reserve rate decision, which lifted the central bank's base rate to a range of between 3% and 3.25%, and a hawkish outlook on further hikes to come from Chairman Jerome Powell.
The Bank of England, however, issued a statement Monday that noted it was "monitoring developments in financial markets very closely in light of the significant repricing of financial assets" but isn't likely to make any interest rate changes until its next scheduled meeting in October.
That was followed by a weaker-than-expected auction of $43 billion in 2-year Treasury notes, which saw the highest yield since 2007 but fading demand from foreign buyers.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.83% higher at 114.13 -- a fresh two-decade high -- against a basket of its major currency peers following the BoE statement.
The CME Group's FedWatch, in fact, pegs the odds of a fourth consecutive 75 basis point rate hike at 75.5%, up form just 61.8% a week ago and 0% at the start of September.
On Wall Street, the S&P 500 ended down 1.03%, while the Dow Jones Industrial Average -- which narrowly escaped slumping into bear market territory on Friday -- tumbled 329 points, or 1.11%, to 29,260. The tech-focused Nasdaq fell 0.60%.
Rates and inflation forecasts will be in keen focus again this week with the core PCE Price Index set for release on Friday and Fed Chairman Jerome Powell slated to deliver opening remarks to a banking conference in St. Louis at 7:30 am Eastern time on Tuesday.
Weakening growth forecasts, however, are putting downward pressure on commodity prices at the same time central banks are accelerating their hawkish rhetoric, suggesting investors are adding stagflation risk to their list of near-term concerns for the wobbling global economy.
The Organisation for Economic Cooperation and Development said Monday that the global economy has "lost momentum in the wake of Russia's unprovoked, unjustifiable and illegal war of aggression against Ukraine", adding that output is likely to be $2.8 trillion lower than the think-tank's earlier forecasts as a result.
WTI futures for November delivery were marked $2.11 lower on the session at $76.63 per barrel in early New York trading, while Brent contracts for the same month fell $2.23 to $83.92 per barrel.
Oil traders will likely keep close track of developments in the path of Hurricane Ian, however, as the accelerating storm gathers pace in the western Caribbean with a forecast track to hit the Gulf coast of Florida early this week.
Sentiment was further hit by results from Italy's weekend national elections, which are likely to deliver a majority victory for the right-wing coalition lead by Gorgia Meloni and her Brothers of Italy party.
In Europe, however, the Stoxx 600 was marked 0.34% lower by the close of trading in Frankfurt while Britain's FTSE 100, whose major constituents earn the bulk of their revenues outside of the United Kingdom ended the day 0.03% higher.
Amazon (AMZN) shares gained 1.2% after the world's biggest online retailer said it would hold an early October shopping event to capture demand from value-focused consumers.
Las Vegas Sands (LVS) shares soared 11.8%, and leading U.S. casino operators moved sharply higher, after officials in the city of Macau, the world's largest gaming hub, agreed to allow tour groups from mainland China for the first time in nearly three years.
