Image: Reuters Berita 24 English - The dollar was expected to post a third consecutive week of gains as a fresh wave of rate hikes around th...
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| Image: Reuters |
Berita 24 English - The dollar was expected to post a third consecutive week of gains as a fresh wave of rate hikes around the world increased concern about the prospects for global economic growth. Asian markets hit a two-year bottom on Friday and were on track to post a weekly loss.
Bond markets continue to be priced expecting large hikes to slam the brakes on output, despite the fact that bets on a 100 basis point hike from the U.S. Federal Reserve later this month fell off a touch overnight as Fed officials hosed down that likelihood. [US/]
China's second quarter economic statistics, which was announced on Friday, showed slower growth than anticipated and severe funding constraints in the real estate industry, with retail sales being the sole area of optimism as big cities were evacuated to manage COVID-19.
Early trading saw a 0.5 percent decline in MSCI's index of Asia-Pacific equities outside of Japan, taking it to a two-year low due to worries over China's real estate market, where homeowner threats to stop making mortgage payments have alarmed the markets.
A Hong Kong-listed index of mainland stocks sank more than 2% while China's main stock index edged slightly higher.
The Nikkei in Japan decreased by 0.1 percent. The U.S. dollar was trading at close to two-decade highs against the euro and the yen this week after pushing the euro below $1 for the first time since 2002. [FRX/]
Overnight, Wall Street indexes declined as concerns of a severe economic slump were stoked by JPMorgan Chase & Co. and Morgan Stanley's weaker-than-expected earnings. [.N]
After St. Louis Fed President James Bullard and Fed Governor Christopher Waller cast doubt on prospects of a 100 bp rate hike later in July, the S&P 500 finished 0.3% lower while futures were up 0.35 percent in Asia.
At a summit in Idaho, Waller stated, "Markets may have gotten ahead of themselves." Bullard added that a 75 bp increase "has a lot of merit to it" in an interview with Japan's Nikkei newspaper.
The benchmark U.S. interest rate is projected to reach roughly 3.6 percent by March of next year before declining to 3 percent by late 2023, according to futures, which also predict a 30 percent possibility of a 100 bp boost.
HIKES
This week's rate hike announcements by the central banks of South Korea, New Zealand, and the Bank of Canada, as well as out-of-cycle policy tightening in Singapore and the Philippines to combat inflation, all stunned the markets.
On Friday, figures regarding U.S. retail sales will also be widely scrutinised.
Investors who believe that a release of sharp rate increases on a slowing economy is imminent in the wake of this week's scorching inflation figure and subsequent Thursday data indicating a substantial increase in producer prices will be further alarmed by weakness.
However, the two-year yield, at 3.1217 percent, is nearly 17 basis points higher than the benchmark 10-year yield, an uncommon inversion of the yield curve that frequently heralds a recession. Short-end U.S. Treasuries were stable overnight.
Rob Carnell, economist at ING, said: "That inversion, I think, has quite a long way to go because we haven't really really priced in that recession yet." He also cautioned equities were at risk because rapidly growing producer prices indicate margin pressure.
The U.S. dollar rules the world's currency markets. Overnight, the euro dropped as low as $0.9952, and it has lost 1.5 percent this week. The last stable price was $1.0030. The yen last bought 138.85 dollars and is currently rushing toward 140.
"The US dollar is receiving support from safe-haven flows in addition to the nearly constant ratcheting up of Fed hawkishness over the past year.
This reflects worries that China would have a difficult time meeting its growth goals this year at a time when the market is worried about the possibility of a recession in Europe and the United States."
Gold was trading barely above a one-year low reached overnight at $1,711 per ounce as Brent crude futures held steady at $99.42 per barrel. [O/R][GOL/]
