As the Federal Reserve’s aggressive tightening course and China’s Covid lockdowns deteriorated the prospects for economic growth, investors rushed to the protection of the US dollar, while global markets sank ever closer to a bear market.
The dollar rose against all of its major counterparts on Monday, extending a two-year high. The MSCI world market index sank 16 percent from its November high as U.S. equity-index futures and European stocks fell. Oil fell as concerns about weakening Asian demand overcame a commitment by the Group of Seven to boycott Russian oil. The five-year rate jumped to its highest level since 2008. Treasuries resumed their selloff.
After Friday’s U.S. jobs report left little room for a shift in the Fed’s rate-increase and quantitative-tightening plans, a wave of risk aversion has swept over global markets. While this pushed the S&P 500 Index to its longest losing run since 2011, sentiment was further harmed over the weekend when Chinese Premier Li Keqiang cautioned that the country’s job condition had deteriorated due to Covid restrictions.
In a note, Diana Mousina, senior economist at AMP Investments, said that the short-term picture for equities “is still murky and there may be more downside as markets worry about a big economic slowdown or ‘hard landing’ and aggressive interest-rate hikes.”
After five weeks of falls in US equities, futures on the S&P 500 and Nasdaq 100 indexes both sank at least 0.9 percent. The Stoxx 600 index in Europe fell for a fourth day, testing a two-month low. An index of Asia-Pacific stocks fell 1.7 percent. For the third day in a row, the Bloomberg Dollar Spot Index has risen.
The story continues…
The yuan fell in China as statistics showed stagnant imports and the worst export growth in dollar terms since 2020, underscoring the economic impact of the Covid lockdowns. Premier Li Keqiang expressed concern over the job market as Beijing and Shanghai tightened viral controls.
Oil dropped by 1.3 percent. Crude is being buffeted by supply threats associated to Russia’s war in Ukraine, as well as demand from China’s breakout.
In global markets, volatility reigns supreme in terms of growth, consumer pricing, and conflict threats. This week’s inflation statistics from the United States and elsewhere could influence bond market fluctuations.
President Vladimir Putin speaks during Russia’s Victory Day parade on May 9, which commemorates the surrender of Nazi Germany in 1945. He may reveal his plans for the invasion of Ukraine.
The G7 most industrialised countries promised to prohibit the import of Russian oil in the most recent Russia-related developments. The European Union is working on a similar proposal, but Hungary is still a holdout, so talks will continue.
The selloff in Australian bonds has continued. For the first time since January, the country’s currency sank below 70 US cents, while Bitcoin fell to levels last seen in 2021. The rupee of India has struck a new low versus the US dollar.
Here are some major events to keep an eye on this week:
On Victory Day in Russia, Russian President Vladimir Putin will speak. Monday
Monday is the Philippine presidential election.
Loretta Mester of the Cleveland Federal Reserve and Raphael Bostic of the Atlanta Federal Reserve discuss. Tuesday
President John Williams of the New York Fed and Fed Governor Christopher Waller speak. Tuesday
Raphael Bostic, President of the Atlanta Federal Reserve, speaks. Wednesday
Wednesday’s PPI and CPI for China.
CPI in the United States.
Mary Daly, President of the San Francisco Federal Reserve, speaks. Thursday
Some of the most significant market movements include:
As of 8:34 a.m. London time, the Stoxx Europe 600 was down 0.5 percent.
S&P 500 futures are down 0.9 percent.
Nasdaq 100 futures are down 0.9 percent.
The Dow Jones Industrial Average’s futures declined 0.7 percent.
The MSCI Asia Pacific Index dropped 1.7%.
The MSCI Emerging Markets Index dropped by 1%.
The Bloomberg Dollar Spot Index increased by 0.5%.
The euro dropped 0.3% to $1.0524.
The Japanese yen dropped 0.5 percent to $131.20.
The offshore yuan dropped 0.7% to $6.7619 per dollar.
The pound dropped 0.5 percent to $1.2281.
The 10-year Treasury yield increased by five basis points to 3.17 percent.
The 10-year German bond yield rose two basis points to 1.15 percent.
The 10-year yield in the United Kingdom rose four basis points to 2.04 percent.
Brent crude dropped 1% to $111.25 a barrel.
Gold declined 0.8 percent to $1,869.11 an ounce on the spot market.