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The Tell: Investors lose confidence worldwide as aggressive rate hikes drive market volatility higher, State Street data says

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Investor sentiment around the world took a hit in June, according to one measure, with global equity markets closing out an ugly first half to 2022.

State Street data showed a fall in global investor confidence in June after perking up in May, while central banks worldwide lay out plans to aggressively hike interest rates as they pivot from sustaining the economy during the COVID-19 pandemic to squashing persistent inflation.

“While the latest round of rate hikes by central banks to stem inflation has driven market volatility higher of late, the impact on U.S. investor confidence has been noticeably more muted when compared to other regions, with both Europe and Asia witnessing a more pronounced decline in sentiment,” said Rajeev Bhargava, head of investor behavior research at State Street, in a release on Wednesday. “Rising recession risks driven by a tricky combination of elevated levels of inflation, slowing business activity and an increasingly hawkish central bank is likely to blame in pushing confidence within Europe lower for the fourth straight month.” 

According to fund manager State Street, the investor confidence index (ICI) decreased to 94.6 in June, down 2.6 points from May. The most notable drop was found in Europe — a 10.6 point decline to 57.6. The U.S. ICI was moderately down 2.5 points to 97.1, and the Asian index fell 4.8 points to 88.8. The index measures investors’ risk appetite and is based on the actual trading activities. 

Read More: What’s next for the stock market after the worst 1st half since 1970? Here’s the history.

The European Central Bank earlier this month confirmed plans to raise its key interest rates by 25 basis points at the July policy meeting, while expecting a further hike in September. Policy makers face challenges in controlling inflation while responding to an economic slowdown resulting from Russia’s war in Ukraine and the associated sanctions on Russian oil and natural gas. 

The STOXX Europe 600 Index
FXXP00,
+0.35%

was down 6.22 points, or 1.51% on Thursday, the last trading day of the first half of 2022, while the FTSE 100
UKX,
-1.96%
,
an index of the leading U.K. companies, was down 0.2%.

Read More: ECB says it will join the rate-hike party, but analysts say there’s little demand to crush

The U.S. equity benchmark S&P 500
SPX,
-0.73%

entered a bear market in the week of June 13, falling more than 20% from its Jan. 3 record finish. The index is headed for a historically ugly half-year performance as markets expect tighter monetary policy to get a grip on the inflation but worry the interest rates will rise to levels that cause a recession. The S&P 500 was on track for its worst first six months of a year since 1970.

Earlier this week, a survey of U.S. consumer confidence dropped in June to a 16-month low of 98.7, as Americans grew more worried about high gas and food prices and the possibility of another recession.

The Dow Jones Industrial Average
DJIA,
-0.79%

fell 170 points, or 0.5%, on Thursday afternoon as Wall Street staggered toward the finish line of a downbeat first-half. The S&P 500
SPX,
-0.73%

was down 0.5%. The Nasdaq Composite
COMP,
-1.06%

slumped 0.8%.

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