After feverish week, global investors lick wounds and brace for more chaos

Global investors are preparing for more market mayhem after a monumental week that whipsawed asset prices around the world, as central banks and governments ramped up their fight against inflation.

Signs of extraordinary times were everywhere. The Federal Reserve delivered its third straight seventy-five basis point rate hike while Japan intervened to shore up the yen for the first time since 1998. The British pound slid to a fresh 37-year trough against the dollar after the country’s new finance minister unleashed historic tax cuts and huge increases in borrowing. “It’s hard to know what will break where, and when,” said Mike Kelly, head of multi-asset at PineBridge Investments (US). “Before, the thinking had been that a recession would be short and shallow. Now we’re throwing that away and thinking about the unintended consequences of much tighter monetary policy.”

Stocks plunged everywhere. The Dow Jones Industrial Average nearly joined the S&P 500 and Nasdaq in a bear market while bonds tumbled to their lowest level in years as investors recalibrated their portfolios to a world of persistent inflation and rising interest rates.

Towering above it all was the US dollar, which has rocketed to its highest level in 20 years against a basket of currencies, lifted in part by investors seeking shelter from the wild swings in markets.

“Currency exchange rates ... are now violent in their moves,” said David Kotok, chairman and chief investment officer at Cumberland Advisors. “When governments and central banks are in the business of setting the interest rates they are shifting the volatility to the currency markets.”