Investors fear that continued monetary policy tightening by central banks in the United States and Europe would scupper the two regional economies, and trigger a recession

September got off to a stormy start on Thursday, as persistent worries about rising global interest rates and recessions hounded stocks and bonds and drove the safe-haven U.S. dollar to a 24-year high against the yen.

Indeed, data released early Thursday that showed U.S. manufacturing grew steadily in August, as employment and new orders rebounded, was not welcomed by investors, who worried a strong economy strengthens the case for the Federal Reserve to keep raising interest rates in the next few months.

Investors fear that continued monetary policy tightening by central banks in the United States and Europe would scupper the two regional economies, and trigger a recession.

The U.S. S&P 500 index slumped 1%, the Dow Jones Industrial Average fell 0.5%, and the Nasdaq Composite tumbled 2.1%.

A 1.8% fall in Europe’s STOXX share index of 600 companies helped pushed MSCI’s main world stocks index down 1.7% to its lowest since mid-July, while Europe’s government bond markets saw more selling after their worst monthly rout in decades.

The bearishness was being fed by the possibility that the European Central Bank will raise its policy rate by a record 75 basis points next week following Wednesday’s record high inflation reading.

The whole world is now fixated on the growth-reducing implications of inflation, rates, and wartime issues such as the energy squeeze, Grantham said.

Add to that COVID-19 in China, food and energy crises, demographics and climate change and ‘the outlook is far grimmer than could have been foreseen,’ he added.

The dive for safety saw the dollar advance to a new 24-year high of 140.21 yen in currency markets as investors braced for higher U.S. rates, while expecting anchored Japanese rates to go nowhere anytime soon.

The euro tumbled 1.1% against a surging dollar to $0.99425, sterling fell 0.7% to $1.15360, while the risk-sensitive Australian and New Zealand dollars drooped to their lowest levels since July.

Hawkish Fed expectations saw Treasury yields hit fresh highs. The yield on benchmark two-year notes jumped to 3.5510% to the highest since late 2007, while the yield on 10-year bonds rose to a high of 3.2970%.

Bets on a bumper ECB move next week were gaining traction, too. Euro zone money markets were now pricing in a roughly 80% chance of an unprecedented 75 basis point hike, up from 50% earlier in the week.

Benchmark German Bund yields, which are a key driver of borrowing costs, went above 1.63% before pulling back to 1.57%. Italy’s 10-year bond yield climbed to its highest since mid-June at 4% at one point, and the closely-watched gap between German and Italian bond yields expanded to its widest since late July.

The ECB’s September 8th meeting is still a close call, but this latest data will likely be enough to tip even the centrist members towards a 75 basis point hike, Mizuho analysts said.