Asian markets fell again on Tuesday and the dollar held gains as traders grew concerned that the Federal Reserve will raise interest rates further to fight inflation.
At the symposium of central bankers and finance chiefs in Jackson Hole this week, the focus is on what Fed Chair Jerome Powell says about his plans to cut rates, with many fearing officials could plunge the economy into recession.
Shares’ losses appear to mark the end of a nearly two-month rally from June lows, which was fueled by signs of economic weakness that observers hoped would allow the bank to be less hawkish.
“Investors are growing concerned that Jerome Powell will deliver an aggressive speech in Jackson Hole while warning that the coming months will be difficult (and raising fears of a recession),” said Matthew Simpson of SoneX Financial.
“Public comments from various Fed members have become increasingly hawkish as they appear to be reading from the same pre-Jackson Hole script – an event usually associated with major Fed announcements.”
Betting that the central bank will hike rates for some time to come have pushed 10-year Treasury yields higher and fueled fears of a contraction in the world’s leading economy.
But the United States is not the only economy under pressure. Governments and banks around the world face an uphill battle against inflation, which is at multi-decade highs due to rising energy costs and supply chain crunch.
This is due to uncertainty rules stemming from the ongoing war in Ukraine and a sharp slowdown in China caused by lockdowns introduced as part of the country’s zero Covid strategy.
Wall Street fell deep in the red, with the S&P 500 and Nasdaq each down more than two percent.
Hong Kong and Shanghai fell as investors rejected a lending rate cut by the People’s Bank of China, which also urged banks to lend more to help ailing housing markets.
Tokyo, Sydney, Seoul, Singapore, Taipei, Manila and Wellington were also down.
The dollar held firm on rate hike expectations with 24-year highs against the yen and two-decade highs against the euro after breaking through parity with the single currency.
The euro has been dogged by recession expectations for months as it is hit by an energy crisis caused by sanctions against Russia over its invasion of Ukraine.
Fears grew after Russia’s Gazprom announced on Friday that the Nord Stream pipeline would close for maintenance at the end of the month, disrupting Europe’s vital gas supplies.
Oil prices — which have been falling for weeks as recession concerns hit demand expectations — rallied after Saudi Arabia suggested OPEC and other big producers could cut production, citing “volatility” in crude markets.
Such a move would deal a blow to the fight against inflation and could offset the potential flow of Iranian oil if an agreement is reached on Tehran’s nuclear program.
– Key figures at 0230 GMT –
Tokyo – Nikkei 225: down 1.2 percent at 28,456.92 (breakout)
Hong Kong – Hang Seng Index: down 0.5 percent at 19,552.76
Shanghai – Composite: down 0.2 percent at 3,270.21
Euro/dollar: up $0.9942 from $0.9941 on Monday
Pound/dollar: rise to $1.1772 from $1.1763
Euro/Pound: DOWN at 84.45p from 84.51p
Dollar/Yen: DOWN at 137.13 yen from 137.48 yen
West Texas Intermediate: up 0.8 percent to $91.11 a barrel
North Sea Brent Crude: up 0.8 percent to $97.26
New York – Dow: down 1.9 percent at 33,063.61 (close)
London – FTSE 100: down 0.2 percent at 7,533.79 (close)
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