Asian stocks tumbled and the dollar hit two-decade highs on Monday as US equity futures fell further on rate concerns, while a tightening lockdown in Shanghai stoked fears of global economic growth and recession. “A series of rate hikes and hawkish communication came amid weaker Chinese and European activity, new plans to cut Russian energy and continued supply-side pressures,” they warned. Barclays analysts. “This increases the bleak potential for sustained inflation, which would force central banks to raise rates despite a drastic drop in GDP.” Chinese trade figures for April were not as bad as expected, with exports gaining 3.9% year-on-year and imports remaining unchanged. However, China’s zero COVID policy continued, with Shanghai tightening the citywide COVID lockdown for another 25 days.
“In the first quarter, the annualized monthly change in core CPI was 5.6%,” the ANZ analysts noted. “That’s too high for the Fed and we think the FOMC won’t ease on inflation until the base figure moderates to around 0.2% m/m on a sustainable basis.” The Fed is not the only central bank facing inflationary pressures. Increasingly, ECB directives are becoming much more hawkish. DOLLAR IN DEMAND Fed funds futures are priced at rates reaching 1.75-2.0% in July, up from 0.75-1.0% currently, and climbing to around 3% in July. here the end of the year. The newspaper is full of Fed speakers this week, giving them plenty of opportunities to keep the hawkish chorus going. The aggressive rate outlook saw the US Dollar hit 20-year highs on a basket of majors at 104.080.
Speculation that Russian President Vladimir Putin might declare war on Ukraine in order to call for reservations during his speech during ‘Victory Day’ celebrations also hurt market sentiment. So far, Putin has called Russia’s actions in Ukraine a “special military operation”, not a war. S&P 500 stock futures led the way down 1.1%, while Nasdaq futures lost 1.0%. US 10-year bond yields hit a new high at 3.15%. EUROSTOXX 50 futures fell 1.5% and FTSE futures fell 0.7%. MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 1.3% and the Japanese Nikkei fell 2.4%. Chinese blue chips fell 0.8%, while the yuan hit another 18-month low to trade at 6.7049 to the dollar. Investors were also tense ahead of Wednesday’s U.S. consumer price report, where only a slight easing in inflation is expected, and certainly nothing to stop the Federal Reserve from hiking at least 50 points. base in June. Core inflation should actually increase by 0.4% in April, compared to 0.3% the previous month, even if the annual rate slows down a little due to base effects.
“Risk appetite is fragile and yield spreads continue to suggest further upside for the dollar index,” said Sean Callow, senior FX strategist at Westpac. “We are looking for continued demand for DXY on the declines, with 104 already surveyed and still potential for a multi-week run to 107.” The euro was stuck at $1.0510 and just a hair above its recent low of $1.0481, while the dollar was very much in control against the Japanese yen at 131.07. Oil prices tumbled after Group of Seven (G7) countries pledged on Sunday to ban or phase out imports of Russian oil over time. After an initial decline, Brent was last traded up 12 cents at $112.51, while U.S. crude added 4 cents to $109.81. Gold was slowing at $1,872 an ounce, having recently struggled to gain traction as a safe haven.
Summary of news:
- GLOBAL MARKETS – Stocks plunge as China tightens its belt, while the currency soars
- Check out all the news and articles from the latest business news updates.