AAsian stock markets are set to suffer from a sharp selloff in U.S. stocks on fears of a possible economic recession, a day after the Fed raised interest by 50 basis points for the first time in two decades. The yield on 10-year US Treasury bonds rose above 3% as bond selling resumed. The Bank of England raised the official bank rate by 25 basis points but indicated a recession in 2023, which intensified the liquidation of the stock markets.
The large swings in stock markets indicate that investors are highly uncertain about the current global economic outlook due to fears of rising rates and lingering inflation, which could begin to dampen demand. In short, an economic recession induced by inflation. However, market reactions evolved into panic selling as few fundamentals had changed. From a technical perspective, the major indices are still holding key support.
Australia and New Zealand on the eve
SPI futures slid 1.54%, indicating a weaker ASX open. Local markets could suffer from the selloff, which could cause a volatile session. Recent bank earnings could help support sentiment.
Macquarie Group kicked the ball out of the park with the release of FY22 results. With a whopping net profit of A$4.706 billion (up 56% on the previous year) and rising of $17.324 billion (up 36% over the previous year). The world’s largest infrastructure asset manager said it would maintain a cautious and conservative stance in positioning itself in the current environment. A 40% outright dividend of $3.50 per share was declared.
The NZX 50 was down 1.14% at the open. The main factor that weakened investment sentiment was an accelerated devaluation of the NZD, which will put upward pressure on import prices and cause domestic inflation, which will support more aggressive tightening moves by the RBNZ.
US and European stock markets overnight
The Dow Jones Industrial Average fell 3.12%, the S&P 3.56% and the Nasdaq 4.99%.
Broader markets ended in the red, with growth stocks leading the losses. Amazon, Meta Platforms and Netflix Inc. all plunged more than 7%. Apple fell 5.8%, Microsoft and Alphabet Inc. fell more than 4%. Tesla Motors was down more than 8%.
E-commerce stocks fell on weak second-quarter expectations as demand eased after the pandemic. Shopify fell 14.81%, eBay 12% and Esty 17.08%.
On the economic side, the 30-year mortgage rate in the United States hit 5.56%, a 13-year high, putting household affordability to the test.
The main European indices fell due to a feeling of risk aversion. The Stoxx 50 fell 0.76%, the CAC 40 slipped 0.43%, the DAX fell 0.49% and the FTSE 100 edged up 0.90%.
Crude oil prices were little changed on Thursday. OPEC and its allies extended their plans to increase oil production by 432,000 barrels, which had a minor impact on oil prices. Slowing economic growth caused by the ongoing lockdowns in China and rising rates also weighed on sentiment on the demand side. WTI crude futures edged up 0.72% to US$108.59 a barrel, and Brent crude futures rose 0.97% to US$111.21 a barrel .
Natural gas continued to rise, up 4.98% to US$8.83 per MMBtu, a 20% increase since the start of the month.
Precious metals pared initial gains due to a strong US dollar, but ended higher. NYMEX gold futures rose 0.45% to US$1,877.30 an ounce after hitting an intraday high of $1,909.93. Silver edged up 0.09% to US$22.50 an ounce.
The USD index resumed its gains, rising 0.97% to 103.585, following the surge in US bond yields.
The pound fell on the back of the BOE’s 25 basis point rate hike while expressing concerns about an impending economic recession. GBP/USD plunged 2% to 1.2369. All other currencies appreciated against the USD. USD/JPY rallied back above 130. Eurodollar erased yesterday’s gains, down 0.75%, to 1.0548 after hitting intraday lows at 1.0490, which is an essential support.
All commodity currencies weakened against the greenback. AUD/USD fell 2% to 0.7113 and NZD/USD fell 1.78% to 0.6426. The Canadian dollar also depreciated against the US dollar despite the strength in oil prices. USD/CAD rose 0.67% to 1.2837.
Bond yields soared. The 10-year US Treasury yield rose above 3%, the 2-year Treasury yield reached 2.70% and the 30-year bond yield reached 3.12%.
The Australian 10-year bond yield rose to 3.38%, helped by the RBA’s hawkish rate hike.
Crypto markets fell as risk sentiment intensified the selling of risky assets. Bitcoin fell 8.21% to US$36,565.34 and Ethereum fell 6.67% to US$2,749.44 in the past 24 hours. Total cryptocurrency market cap fell 7.04% to US$1.68 trillion.
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