As U.S. inflation remains consistently high, the Federal Reserve is expected to raise interest rates by 75 basis points for the third consecutive meeting this week – Copyright AFP MANDEL NGAN
Asian markets tumbled on Monday as traders continued to drop in risk assets last week, with high expectations that the Federal Reserve will announce another excessive interest rate hike this week.
The latest data show that US inflation is at its highest in four decades, and investors are increasingly pessimistic about the outlook for the global economy.
Many observers are warning of a sharp downturn in many countries, driven by huge rate hikes hitting the pockets of families.
And with uncertainty over a range of issues, including Russia’s war in Ukraine and the slowdown in China’s activity caused by the lockdown, stocks are at risk of returning to the lows they hit in June.
Several central banks are set to announce interest rates this week, with Japan and the UK among the biggest, though the main event is the Fed’s decision on Wednesday.
It was hoped that after two straight 75 basis point increases and economic data suggesting weakness, officials would take the pedal off this month.
But last Tuesday’s disappointing consumer price figures shocked traders and raised bets on a third straight rise by 75 points, while some had predicted a full percentage point move.
Politicians, including Fed chief Jerome Powell, have said over and over again that their ultimate goal is to get inflation under control, even if that means sending the economy into recession.
“It is clear that the Fed will project hawkish statements, reaffirming that it will cut inflation unconditionally,” said Vasileos Gkionakis of Citigroup.
Wall Street’s worst week since June ended with big losses after FedEx said on Thursday that it sent fewer packages than expected during the summer due to the weakness of the global economy.
This came after CEO Raj Subramaniam said he expected a global recession.
Asian equity investors continued selling on Monday.
Hong Kong has lost more than one percent, even after reports from the city government that it is considering lifting quarantine rules at hotels.
Shanghai also fell despite news that the Chengdu metropolis is ending a two-week Covid lockdown that has kept 21 million people on lockdown.
Sydney, Seoul, Singapore, Taipei, Manila and Wellington were also in the red. Tokyo was closed for a holiday.
The prospect of further significant Fed rate hikes also keeps the dollar at multi-year highs against its major peers, with the yen under the most pressure as the Bank of Japan refuses to tighten policy.
“The speculative selling of the yen is easily justified by the continued widening of the yield gap between the US and Japan,” said Ray Attrill of National Australia Bank.
“Unless something happens to stop or reverse this widening of the spread, the yen is subject to additional selling pressure.”
The Japanese unit hit a new 24-year low of 144.99 per dollar last week, although it rebounded slightly after comments from BOJ officials signaled they were ready to step in to provide support.
Oil prices rose on news from Chengdu that lifted hopes for demand, although gains were limited by growing fear of a recession around the world.
– Key figures around 02:30 GMT –
Hong Kong – Hang Seng Index: DOWN 1.1% to 18,559.45.
Shanghai – Composite: DOWN 0.2 percent to 3119.55.
Tokyo – Nikkei 225: closed for holidays
Pound/Dollar: DOWN to $1.1400 from $1.1423 on Friday.
EUR/GBP: Up 87.70p from 87.00p
EUR/USD: DOWN to $1.0000 from $1.0018
Dollar/yen: above 143.13 yen from 142.91 yen.
West Texas Intermediate: up 0.8% to $85.79 per barrel
Brent North Sea oil: up 0.9% to $92.17 per barrel
New York-Dow: DOWN 0.5% to 30,822.42 (close)
London – FTSE 100: DOWN 0.6 to 7,236.68 (close)