© Reuters. FILE PHOTO: A man wearing a protective mask, in the midst of the outbreak of coronavirus (COVID-19), walks past an electronic board showing the Shanghai Composite Index, the Nikkei Index and the Dow Jones Industrial Average outside a brokerage house in Tokyo, Japan, 7 March,
By Wayne Cole
SYDNEY (Reuters) – Asian stocks fell and the dollar peaked in two decades on Monday as U.S. stock futures extended the fall due to interest rate concerns, while a tightening lockout in Shanghai raised concerns about global economic growth and recession.
“A number of interest rate hikes and hawkish communications came against a backdrop of declining Chinese and European activity, new plans for Russian energy bans and continued pressure on the supply side,”[ads1]; analysts warned at Barclays (LON :).
“This creates the bleak outlook for sustained inflation that is forcing central banks to raise interest rates despite sharply declining growth.”
Chinese trade data for April were not quite as bad as feared, with exports up 3.9% year-on-year and imports flat.
However, there was no failure in China’s zero-COVID policy with Shanghai, which tightened the city-wide COVID barrier for 25 million inhabitants.
Speculation that Russian President Vladimir Putin may declare war on Ukraine to accumulate reserves during his speech during the “Victory Day” celebration also hurt market sentiment. Putin has so far characterized Russia’s actions in Ukraine as a “special military operation”, not a war.
Stock futures fell 1.1%, while Nasdaq futures fell 1.0%. US 10-year bond yields rose to a new high of 3.15%.
EUROSTOXX 50 futures fell 1.5% and futures 0.7%.
MSCI’s broadest index for Asia-Pacific equities outside Japan fell 1.3% and 2.4%, respectively. Chinese blue chips fell 0.8%, while the yuan reached a new 18-month low to trade at 6.7049 per dollar.
Investors were also tense ahead of the US consumer price report on Wednesday, which predicted only a slight easing of inflation, and absolutely nothing to stop the Federal Reserve from rising by at least 50 basis points in June.
Core inflation is actually up 0.4% in April, up from 0.3% last month, although the annual pace is falling slightly due to base effects.
“In Q1, the annual monthly change in the core CPI was 5.6%,” noted analysts at ANZ. “It is too high for the Fed, and we believe that the FOMC will not relax in terms of inflation until the core figure moderates to around 0.2% m / m on a sustained basis.
“The Fed is not the only central bank facing inflationary pressures. Increasingly, ECB guidance is becoming much more hawkish.”
DOLLAR IN DEMAND
Fed Fund futures are priced at prices that reach 1.75-2.0% in July, from the current 0.75-1.0%, and climb all the way to around 3% by the end of the year.
The diary is full of Fed speakers this week, which will give them plenty of opportunities to keep up with the hawk choir.
The aggressive interest rate outlook led to the US dollar rising 20-year highs on a basket of large to 104,080.
“Risk appetite is fragile and return spreads continue to suggest further upside on the dollar index,” said Sean Callow, Westpac’s senior currency strategist.
“We are looking at ongoing demand for DXY on the decline, with 104 already investigated and still potential for a race against 107 multi-weeks.”
The euro was stuck at $ 1.0510 and just a hair’s breadth above its latest low of $ 1.0481, while the dollar had a lot of control against the Japanese yen at 131.07.
Oil prices went up unexpectedly after the group of seven (G7) nations on Sunday pledged to ban or phase out imports of Russian oil over time.
After an initial fall, the latter was listed 12 cents higher at $ 112.51, while it was added 4 cents to $ 109.81.
Gold idled to $ 1,872 an ounce, after struggling to gain some traction as a safe haven recently.