World stocks slumped on Monday as the growing risk of more aggressive interest rate hikes in the United States and Europe inflicted fresh pain on bond markets and pushed the dollar to new 20-year highs, just as recession fears mount.
Federal Reserve Chair Jerome Powell, speaking at the Jackson Hole symposium on Friday, said the Fed would raise rates as high as needed to restrict growth, and keep them there "for some time" to bring down inflation running well above its 2% target.
European Central Bank board member Isabel Schnabel added to market unease. She warned on Saturday that central banks risk losing public trust and must act forcefully to curb inflation, even if that drags their economies into a recession.
As investors woke up to the reality that rates would stay higher for longer even as recession risk grows, two-year U.S. Treasury yields rose to their highest since 2007.
European stocks slumped to their lowest level in almost six weeks and were last down over 1%(.STOXX). U.S. stock futures were deep in the red , and Japan's blue-chip Nikkei slid over 2.5% (.N225)
London markets were closed for a holiday, while MSCI's world equity index (.MIWD00000PUS) fell 0.7% to a one-month low.
"The message from Jackson Hole was loud and clear and not what markets were expecting," said Nordea chief analyst Jan von Gerich.
"Central banks need convincing evidence that inflation is coming down. That is bad news for the economy and risk appetite and raises the risk of a deeper recession if we get more rapid rate hikes."
Investors ramped up U.S. and euro zone rate hike bets, with markets pricing in a greater chance of 75 basis point hikes from the Fed and ECB in September .
