Asian stocks went down on Thursday, and the dollar went up, as investors got rid of anything that wasn’t set in stone as September began. This came after a month in which investors worried that global authorities would raise rates quickly.
The sell-off is poised to impact European markets, with Euro Stoxx 50 futures plunging 0.9%, German DAX futures down 0.86%, and FTSE futures falling 0.6%. Futures for the S&P 500 fell 0.7%, while futures for the Nasdaq fell 1.2%.
Related: Asian stocks fall as Powell, a rate-hike bet enthusiast, drums up speculation.
Both the U.S. Federal Reserve and the European Central Bank are anticipated to rapidly boost interest rates this month. Last month, inflation in the euro zone hit a new record high. This made it more likely that the ECB would raise rates by 75 basis points (bps) the next week.
MSCI’s broadest index of Asia-Pacific equities outside Japan fell 1.6% to its lowest level in six weeks as risk sentiment deteriorated.
Japan’s Nikkei index fell 1.7%, Hong Kong’s Hang Seng index fell 1.5%, and Chinese blue-chip stocks rose 0.1% because Beijing said it would help the economy more.
Regional purchasing managers’ indices from South Korea, Japan, and China all indicated a slowdown in global economic activity on Thursday, due to increasing interest rates, high inflation, the crisis in Ukraine, and China’s COVID restrictions.
In a client note, Rodrigo Catril, senior FX strategist at National Australia Bank, said, “August was a bad month for investors in balanced funds. Having a mix of stocks and bonds didn’t help with diversification.”
“At the end of the month, there are no shocks. Instead, the main trends seen in August continue, with more increases in core global bond rates and lower stock markets.”
Related: Asia’s stocks went up and down, and China cut interest rates because of bad data.
Overnight, Loretta Mester, president of the Cleveland Fed, stated that the U.S. central bank would need to raise interest rates above 4% by early next year and keep them there in order to bring inflation back down to the Fed’s target, and that the likelihood of a recession within the next two years had increased.
August closed with the worst result for U.S. stocks in seven years. The Dow Jones Industrial Average decreased by 4.06%, the S&P 500 by 4.24%, and the Nasdaq by 4.64% for the month.
The markets are waiting for U.S. non-farm payrolls data to come out on Friday. They may not like a good result if it means aggressive rate hikes will continue, which could make the U.S. dollar even stronger.
Paul Gruenwald, global chief economist at S&P Global Ratings, stated, “What we’re telling our clients and stakeholders is that we should be watching the labour market… if the labour market starts to weaken, that’s a sign that consumer sentiment is starting to weaken, and that’s a very strong indication that we’re likely going into a recession scenario.”
On currency markets, the dollar rose 0.4% against the Japanese yen to a 24-year high of 139.5. This was because investors were preparing for U.S. interest rates to go up while expecting Japanese interest rates to stay the same.
Both the euro and the pound declined 0.4% versus the dollar.
Treasury rates reached new highs due to hawkish Fed predictions. The yield on benchmark two-year notes increased 6 basis points to 3.51 percent, the highest level since late 2007, while the yield on 10-year bonds surged 6 basis points to 3.21 percent.
Related: Asian stocks fall as a result of Chinese inflation, with the Consumer Price Index (CPI) in the spotlight.
Brent crude slipped 0.4% to $95.31 per barrel, while U.S. crude slid 0.4% to $89.2 per barrel. Russia blocked gas deliveries along Europe’s primary supply route on Wednesday.
Gold prices decreased somewhat. The spot price of gold was $1703.9 per ounce.
