Asian markets tumble and the pound slumps as Britain’s economic plan startles investors.

 

Asian markets tumble and the pound slumps as Britain’s economic plan startles investors.

China lets its currency weaken past a psychological barrier.

 

Daisuke Wakabayashi

By Daisuke Wakabayashi

https://www.nytimes.com/live/2022/09/25/business/economy-news-inflation-stocks

 

Markets tumbled on Monday, extending last week’s losses as rattled investors continued to worry about the prospects of a global recession triggered by higher interest rates, energy shortages, and spiking inflation.

 

Stock markets in Japan and South Korea dropped more than 2 percent at the open of trade on Monday, while the pound briefly crashed to a $1.03, a record low against the dollar. By midday in Seoul, sterling had rallied to about $1.05, hovering around its weakest level since 1985.

 

Last week, central bankers around the world, from the United States to Sweden to Indonesia, raised interest rates to combat stubbornly high inflation. Stocks nose-dived, government bond prices plummeted, oil prices slumped, and cryptocurrencies wobbled.

 

On Friday, the markets were further spooked by a sudden policy change from Britain’s new prime minister, Liz Truss, on how to fix its ailing economy. Already struggling with volatile energy prices and soaring inflation, her new government is betting that tax cuts, deregulation and other hallmarks of free-market economics will pull the country out of its economic slump.

 

But many investors feared that the British tax cuts would overstimulate the country’s economy, leading to even more rate increases to curb inflation.

 

The FTSE 100, Britain’s benchmark stock index, fell more than 2 percent on Friday. Europe’s Stoxx 600 index fell into a bear market — defined as a drop of 20 percent or more from its most recent high.

 

In the United States, the Federal Reserve on Wednesday raised interest rates by three-quarters of a percentage point for the third time since June. Previous rate increases have already raised costs for consumers and businesses. Additional ones could augur a period of higher unemployment and slower economic growth.

 

The sell-off in U.S. stocks on Friday left the S&P 500 index just above its lowest point for the year, almost wiping out gains from a mini rally over the summer that came amid misplaced optimism that the worst was over for the market. The benchmark index is down more than 22 percent for the year, and could record its third straight quarter of losses this week. It would be the first time that has happened since the global financial crisis sent markets into a tailspin in 2008.