Analysts say a still-strong US labor market will give the Federal Reserve room to further tighten monetary policy – Copyright AFP Frederic J. BROWN
Investors dumped Asian equities even more on Thursday as they braced for further interest rate hikes to quell runaway inflation, with some analysts warning that markets could retest June lows.
Data showing record price increases in the eurozone in August have heightened fears that central banks have a long way to go before they win their battle, stoking recession warnings in the world’s leading economies.
Another drop on Wall Street came as Treasury yields — a key indicator of future interest rates — surged even further as a generally positive U.S. private jobs report showed there was still plenty of room for the Fed to maneuver to continue tightening monetary policy.
Meanwhile, another senior Fed official signaled that the bank is determined to keep raising borrowing costs, mirroring Chairman Jerome Powell’s comments last week that there would be no easing in the fight against inflation.
“At this time, I believe the Fed funds rate needs to be raised to just above four percent by early next year and kept at that level,” Cleveland Fed President Loretta Mester said in a pre-event speech for the Dayton Borough House. commerce.
“I don’t expect the Fed to lower its target Fed funds rate next year.”
Interest rates are currently at 2.25-2.5 percent and there are growing expectations that they will be raised by a record 75 basis points at the third consecutive meeting later this month.
Traders will be keeping a close eye on the government’s employment report on Friday, hoping to get a glimpse of the next move by the bank, which said it would make a data-driven decision.
In yet another warning that politicians have a win-at-any-cost mentality, Mester later told the audience, “Even if the economy goes into recession, we have to bring inflation down.”
The Fed’s hawkish statements have dealt a heavy blow to the rally in markets since their June lows.
And some have warned that there could be more problems along the way, as Francis Stacy of Optimal Capital Advisors told Bloomberg Radio, “I don’t think we’ve seen a bottom this year.”
The gloomy mood in New York and Europe, which is also suffering from a major energy crisis, has spread to Asia.
Tokyo, Hong Kong, Sydney, Seoul, Singapore, Wellington, Taipei and Jakarta were in deep negative territory, although Shanghai won slightly with Manila.
The prospect of further US rate hikes continued to put pressure on the dollar higher against all other currencies, and for the first time since 1998, the psychological 140 yen mark was within sight.
And analysts speculate that a breach of that barrier could lead to an intervention by the BOJ, though they also warned it was unlikely to make much of a difference due to Tokyo’s refusal to tighten its own monetary policy despite rising prices.
“Most likely there will be some verbal intervention as we approach 140,” said David Lu of NBC Financial Markets Asia.
“But actual intervention is likely to be ineffective at this point, with the dollar generally rising on the US monetary policy outlook and there is no BOJ support for the yen.”
– Key figures around 02:30 GMT –
Tokyo – Nikkei 225: REDUCED 1.5% to 27,673.14 (hiatus)
Hong Kong – Hang Seng Index: DOWN 0.8% to 19,795.76
Shanghai – Composite index: up 0.3% to 3210.75.
EUR/USD: DOWN to $1.0026 from $1.0054 on Wednesday.
Pound/Dollar: DOWN to $1.1584 from $1.1619.
Euro/pound: up 86.55p from 86.50p.
Dollar/yen: DOWN by 139.62 yen from 138.98 yen
West Texas Intermediate: REDUCED 0.2% to $89.35 per barrel
Brent North Sea Oil: DECLINE 0.3% to $95.34 per barrel
New York-Dow: DOWN 0.9% to 31,510.43 (close)
London – FTSE 100: DOWN 1.1% to 7,284.15 (close)