Fear is growing that further large interest rate increases will push economies into a deep recession. The mood also prevailed, with the worsening war in Ukraine and weak demand expectations in China.
With a focus on inflation, analysts said US CPI data released later this week will be crucial to the direction of risky assets. Another big reading could lead to a fresh sell-off in stocks and a stronger dollar. “There is increasing pessimism in the markets now and with some big data coming out of the US this week, not to mention the start of earnings season,” noted Craig Erlam, an analyst at OANDA business group.
“Investors are likely to prepare for more volatility.”
Traders had been hoping that the bumper rate hikes by the US Federal Reserve this year would start to weigh on the economy and slow wild prices, allowing policy makers to reduce the pace of monetary tightening.
But Friday’s better-than-expected US jobs report highlighted the country’s central bank’s hard work in slowing inflation from four-decade highs, and many observers warn that a recession is inevitable.
– ‘A real danger’ –
World Bank President David Malpass said there was a “real risk” of a global deflation next year, adding that a stronger dollar was weakening developing countries’ currencies and pushing their debts to “stressful” levels.
While the US economy has held up, it has faced several headwinds including higher interest rates, higher inflation, Fed tightening and the Ukraine war, JPMorgan President Jamie Dimon told CNBC.
He added that he has seen a recession in the United States in six to nine months, and that the S&P 500 could fall another 20 percent.
“It is no wonder that investors are entering the week in a gloomy mood, especially as the headlines from Ukraine point to a further escalation of geopolitical tensions,” said Christopher Smart, Barings strategist.
Chip makers globally have received a boost from new US export controls aimed at restricting China’s ability to purchase and manufacture high-end chips with military applications.
The Philadelphia Stock Exchange’s semiconductor index saw its lowest closing level since late 2020, while Bloomberg News reported that $240 billion in market values of companies around the world have been slashed.
– Dollar falls –
Taipei led losses in Asia – a plunge of more than four percent – with chip giant TSMC down 8.3 percent, while massive sell-offs at Samsung Electronics pulled Seoul down 1.6 percent. Tokyo was also sharply lower due to the blow to tech companies.
All three markets were closed on Monday and were reacting to Friday’s US announcement for the first time.
In the currency markets, the dollar fell after recent strong gains as the US headed for a monetary tightening campaign.
However, sterling remained under pressure despite the Bank of England unveiling further measures to calm markets shaken by the UK’s budget, saying it would increase government bond purchases.
“Investors fear that the UK government is borrowing too much and that it will not be able to balance its books,” said Fouad Razakzadeh, analyst at City Index and Fouad Razakzadeh.
Oil prices fell sharply, with concerns about the Chinese demand front and position.
“Covid cases are spreading in the country, and the Chinese Communist Party newspaper, The People’s Daily, has published a commentary saying the Covid Zero policy is ‘sustainable,’ which indicates that the state will likely continue to pursue it if not double it,” said Stephen
Innes of SPI Asset Management.
– Key numbers around 1330 GMT –
London – FTSE 100: down 0.8 per cent at 6,903.83 points
Frankfurt – Dax: down 0.6 percent at 12198.54
Paris – CAC 40: down 0.4% at 5,815.38
EURO STOXX 50: down 0.6% at 3,336.12
New York – Dow: down 0.3 percent at 29114.89
TOKYO – Nikkei 225: down 2.6 percent at 26401.25 (close)
Hong Kong – Hang Seng Index: down 2.2 percent at 16,832.36 (close)
Shanghai – Composite: up 0.2% at 2,979.79 (close)
EUR/USD: up at $0.9716 from $0.9708 on Monday
Pound/dollar: rose at $1.1085 from $1.1059
EUR/GBP: DOWN at 87.74 pence from 87.76 pence
Dollar / yen: down at 145.68 yen from 145.72 yen
West Texas Intermediate: down 2.0% at $89.03 a barrel
Brent North Sea crude: down 1.8% at $94.45 a barrel