HONG KONG (AFP) – The Asian markets fell on Monday, and the dollar went up. This was part of a global sell-off that was caused by a US inflation number that was higher than expected. This made people bet on the Federal Reserve raising interest rates more quickly.
Because of new COVID outbreaks in Shanghai and Beijing, the government quickly put back into place measures to keep the disease from spreading, making people worry about the world’s second largest economy.
Oil prices went down because of worries about a possible US recession and a stronger dollar. The possibility of more restrictions in China’s biggest cities also hurt the black gold.
On Friday, data showed that US inflation rose 8.6% in May, which was the fastest rate since December 1981. The Ukraine war and China’s lockdowns pushed up the prices of energy and food.
The reading has led to a lot of talk that the Fed will now think about raising interest rates by 75 basis points at some point in the future. However, it is still expected that the Fed will only raise rates by half a point when it meets this week.
There is worry that the US economy could go into a recession next year since the central bank has to be more aggressive.
Stephen Innes of SPI Asset Management said, “There has been a cautious calm in the markets for the last few weeks.” Rates haven’t priced in anything unexpected, and stocks have been able to make small gains. “
“But the strength of (US consumer prices) turned that whole thing on its head.
“The market is now thinking a lot more about how the Fed could sharply raise interest rates to fight inflation and then have to cut back when growth slows down.”
And the chief economist at the Bank of Singapore, Mansoor Mohsoor-uddin, said that officials are likely to raise borrowing costs by 50 basis points at each of the next four meetings. This will bring the overall rate to 4% in 2023.
Wall Street’s three main indexes all fell, but the Nasdaq fell the most because tech companies are vulnerable to higher interest rates. European markets also took a beating.
Asia did the same thing: Hong Kong, Tokyo, Seoul, Taipei, and Wellington all went down by more than 2%, and Shanghai, Singapore, Manila, and Jakarta almost did the same.
In a note, Goldman Sachs analysts said: “At some point, growth will slow down enough or financial conditions will get tight enough that the Fed can stop raising interest rates.”
“But we don’t seem to be close to that point yet, which suggests that bond yields could go up, that risky assets will continue to be under pressure, and that the US dollar will probably stay strong for now.“
The dollar kept going up because people thought US interest rates would go up sharply. It hit multi-year highs against its peers and came close to a 24-year high against the yen.
Rob Carnell of ING Groep told Bloomberg Television that the yen will be sold off again sooner rather than later if the Bank of Japan doesn’t change its loose monetary policy.
“I think it’s more a matter of when than if they will do it.”
Oil prices went down even more than they did on Friday because people were worried that China would stick to its zero-COVID policy, which hurts the economy, to fight a new outbreak of the disease.
Just weeks after strict rules were lifted in the country’s biggest city, Shanghai, parts of the city were put back on lockdown and millions of people were given mass tests.
