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MSCI’s world stocks index has had its worst start to a year since its 1990 creation over the last six months.Kim Kyung Hoon/Reuters

The second half of the year started with more volatility for global stocks on Friday, as recession concerns that have built in recent weeks also pulled metals and commodity currencies lower again.

Over the last six months, MSCI’s world stocks index has had its worst start to a year since its 1990 creation, and an early tumble followed by recovery by both Europe and Wall Street futures pointed to more instability ahead.

Asia had thudded lower, too, with the heaviest fall in Taiwan, where the growth-sensitive benchmark index slid more than 3 per cent to its lowest since late 2020.

Japan’s Nikkei fell 1.75 per cent. The Australian and New Zealand dollars each fell 1 per cent to two-year lows.

Growth-sensitive copper was down 2.7 per cent and heading for its fourth straight weekly drop, while U.S. Treasuries and German Bunds rallied in the bond markets.

Natixis’ Head of European Macro Research Dirk Schumacher said that while the region was not in recession yet, the worry was that it could get pushed into one.

Data on Friday showed manufacturing production in the euro zone fell for the first time last month since the initial wave of the coronavirus pandemic in 2020, while inflation numbers hit another record high.

“In Europe, and globally, the cyclical picture is not looking great,” Mr. Schumacher said. “There is a long list of risk factors,” he added, and “the usual safety valve (of lower interest rates or central bank stimulus) is obviously not there now.”

Across the Atlantic, the S&P 500 futures were pointing fractionally lower again after the benchmark U.S. index had closed out its worst first-half since 1970 on Thursday.

The Fed’s rapid rise in interest rates mean the Treasury market took such a beating that Deutsche Bank estimated the half’s performance was the poorest since 1788 – the year the U.S. constitution was ratified.

It has been hints of peaking inflation and signs of weak growth that have started steadying bond markets, though.

Two-year Treasuries are on course for their best week since markets’ pandemic meltdown of March 2020 as traders now wind back rate-hike bets.

Moves were turning choppy again on Friday. But the two-year U.S. yield is down almost 14 basis points (bps) this week to 2.91 per cent. The 10-year yield is down about 15 bps on the week to 2.99 per cent and Bund yields have dropped to 1.39 per cent from a high of 1.56 per cent on Monday.

Fed funds futures, which a few weeks ago were priced for rates to hit 4 per cent next year, are now showing that markets expect rate cuts by the middle of 2023 and a peak below 3.5 per cent.

The U.S. dollar was on the front foot again on Friday, having just scored its best quarter since 2016 as U.S. yields rose. Its reputation means economic uncertainty has kept it supported even as yields have retreated.

“It’s safe-haven demand,” said Khoon Goh, head of Asia research at ANZ Bank in Singapore.

Other safe-haven currencies such as the Japanese yen and the Swiss franc also drew investors. The yen rose about 0.2 per cent to 135.40 per dollar and a little further to 141.64 per euro.

But the Australian dollar fell through support at US$0.6850 in Asia and was last down 1.4 per cent at US$0.6803. The kiwi slid 1.1 per cent to US0.6178.

A string of business surveys on Friday showed China emerging as an outlier as its economy slowly recovers from COVID-19 lockdowns. Factory activity bounced solidly in June against slowdowns in Japan and South Korea and a contraction in Taiwan.

Markets are also bouncing and though the Shanghai Composite and blue-chip CSI300 edged about 0.3 per cent lower on Friday, they are each set to log five straight weeks of gains.

Hong Kong’s markets were closed for a holiday, and the city was focused on Chinese President Xi Jinping’s visit.

The yuan slipped with the broader market to 6.7136 per U.S. dollar. Gold has been weighed by the stronger dollar and U.S. yields and was flirting with US$1,800 an ounce.

Bitcoin, which suffered its biggest quarterly drop on record over the three months to the end of June, fell 3 per cent to US$19,375 on Friday.

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