The US stock market continues its free-fall Friday as investors continue to digest the fallout from the Federal Reserve’s policy meeting on Wednesday. The economy is going to take some nasty bumps and bruises before things get better, so investors are preparing themselves for the worst now. Treasury yields are still soaring feverishly as shareholders move their assets into the more secure, long-returning world of bonds.
Meanwhile, the British pound is also feeling the pressure. The UK government has unveiled a series of tax cuts to help ease the pressure on working-class citizens, bringing the pound down to $1.0960, one of its lowest levels in recent history. While this makes travel to the UK an easier travel prospect for Americans, it’s nightmarish for the lowest-income citizens in the UK. The cost of living in the country has skyrocketed since this time last year.
Elsewhere, Europe is feeling further pressure from the ongoing conflict in Ukraine. Russian President Vladimir Putin has authorized a partial mobilization of the military to invade the country’s Western neighbor, even as some citizens in Russia protest against the senseless warfare. Putin has even begun threatening the use of nuclear weapons, alarming every government on the planet.
US Stocks Crater
The stock market in the US has dropped consistently over the past week as investors are spooked by the Federal Reserve’s ongoing quantitative tightening program. The three major indexes dropped again this morning, with the S&P 500 falling 1.6% shortly after the start of trading. The Dow Jones Industrial Average also shed almost 1.3% to find a new two-year low. This marks the first time since June that the Dow Jones has dropped under falling 30,000 points. The technology-heavy Nasdaq Composite sank another 1.7%, too, suffering the harshest losses.
Elsewhere in the economy, the ten-year U.S. Treasury note jumped past 3.7%, rivaling its highest benchmark in almost 12 years. In a sign of some relief for consumers, crude oil prices continued to fall–a rare good thing for working-class Americans in the current economy.
“The expected path of interest rates is now higher than we previously assumed, which tilts the distribution of equity market outcomes below our prior forecast,” says Goldman Sachs analyst David Kostin, referring to the Fed’s recent path of interest rate hikes.
British Pound Sinks
The economic situation in Europe isn’t looking any better than in the US. The euro and the British pound are both experiencing brutal inflationary pressures, too, creating cost-of-living crises throughout the continent. The situation is extremely pronounced in the UK, where the Bank of England is scrambling to get the inflation rate under control. Currently, the pound is at its lowest level since 1985.
Investors quickly ditched UK bonds this morning after the UK’s government signaled that it would cut its tax rates in an attempt to give some money back to struggling, working-class people. UK equity markets rose this morning, too, with investors uncertain of where to put their assets to safeguard them against this inflationary environment. Investors are just running out of places to put their money.
Some analysts pointed out that the move was designed to increase demand in the economy from the working class up. “The obvious implication is that BOE rates are likely to be higher for longer than they would have been otherwise,” says Rabobank senior FX strategist Jane Foley. “While textbooks suggest that higher short-term interest rates should be currency supportive, GBP has been demonstrating since the spring that this is not always the case.”
Russian Citizens Flee Draft
Citizens in Russia fled to neighboring countries like Georgia and Finland this morning after President Vladimir Putin announced a plan to draft as many as 300,000 new soldiers for the war effort in Ukraine. The extremely unpopular war has soured many Russian citizens on Putin’s regime and fighting-age men were quick to attempt to flee the country to keep themselves from being drafted.
Germany’s interior minister, Nancy Faeser, indicated that Russian draft dodgers would be welcome in the country. The Kremlin has publicly stated that it believes the number of men fleeing the country has been exaggerated, but independent reporting has shown long lines of cars at the Russian border with Georgia. Many men eager to get out of the country were seen riding bicycles, avoiding both the traffic and a ban on people crossing the border “on foot.”
Some sources suggest that Putin also plans to draft far more than 300,000 people into the war effort. A classified paragraph in the recent order was kept from the public, and some anonymous sources within the Russian government have reported that the paragraph calls on the military to draft as many as 1 million fighting-age men. The war effort has been disastrous for Europe’s economy, and this news will likely only pour further uncertainty into the equation.