Markets track Wall St plunge on inflation woes, dollar rallies

Markets track Wall St plunge on inflation woes, dollar rallies

Markets track Wall St plunge on inflation woes, dollar rallies

Markets track Wall St plunge on inflation (Credits: Google)

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  • Markets fall in Asia on Monday, extending a global decline.
  • US inflation data fuels hopes of more aggressive Federal Reserve interest rate hikes.
  • More restrictions in China’s biggest cities also weigh on oil prices amid concerns over the world.
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Markets fell in Asia on Monday, extending a global decline, as the dollar rose after a forecast-beating US inflation data increased hopes of a more aggressive Federal Reserve interest rate hike campaign.

Authorities in Shanghai and Beijing have also reimposed containment measures shortly after lifting them, raising concerns about the world’s second-largest economy.

The possibility of more restrictions in China’s biggest cities also weighed on oil prices, with concerns about a possible US recession and the stronger dollar adding to downward pressure on the black gold.

Investors were left surprised Friday when data showed US inflation jumped 8.6 percent in May, the fastest pace since December 1981, as the Ukraine war and China’s lockdowns pushed energy and food prices.

Read More: Global markets dive on heightened recession fears

The reading has led to fervent speculation that the Fed will now be contemplating a 75 basis point lift in interest rates at some point, though it is still expected to stick to a flagged half-point hike when it meets this week.

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With the central bank forced to be more aggressive, there is a concern that the US economy could be sent into recession next year.

“For the last few weeks, there has been a cautious calm in markets — rates not pricing anything unforeseen, and equities able to make small gains,” said SPI Asset Management’s Stephen Innes.

“But the strength of (US consumer prices) completely upended that apple cart.

“The market is now thinking much more about the Fed driving rates sharply higher to get on top of inflation and then having to cut back as growth drops.”

And Bank of Singapore chief economist Mansoor Mohi-uddin added that officials would likely lift borrowing costs 50 basis points for the next four meetings and eventually push the overall rate to 4.0 percent in 2023.

– Record plunge for rupee –

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Wall Street’s three main indexes tanked, with the Nasdaq taking the heaviest blow as tech firms — which are susceptible to higher rates — were battered, while European markets were also hammered.

Asia followed suit, with Hong Kong, Tokyo and Seoul down more than three percent, while Mumbai, Jakarta, Taipei, Jakarta and Wellington were off more than two percent. Shanghai, Singapore, Manila and Bangkok are also well down.

Goldman Sachs analysts said in a note: “At some point, financial conditions will tighten enough and/or growth will weaken enough such that the Fed can pause from hiking.

“But we still seem far from that point, which suggests upside risks to bond yields, ongoing pressure on risky assets, and likely broad US dollar strength for now.”

The dollar continued to push higher on expectations for a sharp increase in US rates, hitting a 24-year peak of 135.19 yen while it also broke above 78 Indian rupees for the first time.

The greenback was also at multi-year highs on the euro and sterling.

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“The ongoing backdrop to the yen’s fall is the growing gap between long-term interest rates in Japan and the United States,” Takahide Kinouchi, an executive economist at Nomura Research Institute, said in a recent commentary.

As oil prices climb, “expectations are increasing greater that aggressive US monetary tightening will continue, for the time being, prompting US rates to rise further.”

Oil prices fell, extending Friday’s decline, as China maintained an economically ruinous zero-Covid policy to combat a new epidemic of the disease.

Shanghai was placed under lockdown again, as officials conducted mass testing on millions of people, just weeks after relaxing severe limits in the country’s largest city.

Read More: Britain makes crypto technology a priority for streamlining markets

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