Image: Reuters Berita 24 English - As investors waited to see if subsequent U.S. inflation data would support the case for yet another hefty...
.jpg) |
| Image: Reuters |
Berita 24 English - As investors waited to see if subsequent U.S. inflation data would support the case for yet another hefty Federal Reserve rate hike this month, stocks fell on Wednesday and the euro lingered just above parity against the dollar.
After a session that was largely stable in Asia Pacific, where South Korea and New Zealand had increased their rates once more, recession concerns caused Europe to start out slowly.
Early Wednesday, the DAX in Germany and the FTSEMIB in Italy were both down more than 1.2 percent. London's FTSE was not far behind [.EU], and as gas and oil prices increased once again, the euro teetered near $1.0025. [/FRX] [O/R]
The indicator of global growth, copper, has also fallen to a 20-month low. [MET/L]
Investors were more more interested in whether U.S. inflation numbers would later show it heading above 9 percent, which would be its highest since 1981, than UK economic growth data, which showed an unexpected uptick.
According to Kit Juckes of Societe Generale, "markets have been held up a little bit in terms of parity in euro-dollar but we still have an incredible number of moving parts." The more significant the U.S. inflation figures, the more obvious it will be that the Fed will continue raising interest rates, he added.
At its most recent meeting, it boosted them by a whopping 75 basis points, the largest increase since 1994.
If that (a strong inflation figure) occurs today, Juckes added, "it might drive the euro decisively beyond parity, get the bond market a little worried again, and invert the U.S. yield curve more."
The greatest rate hike since the bank began its present policy method in 1999 was made by South Korea's central bank on Wednesday, underscoring concerns about global inflation. New Zealand's central bank likewise boosted rates by the same level for the third consecutive time, to 2.5 percent.
The result was a holding trend in the fixed income markets. While 10-year U.S. Treasuries remained at 2.97 percent as investors processed the IMF's most recent downgrade to its U.S. growth projection, German government bond rates moved up to 1.15 percent after plunging dramatically for two days.
According to Jim Reid of Deutsche Bank, warning lights of a bond market recession are now flashing "with mounting anxiety." One in particular is the 2 year/10 year U.S. Treasury curve, which has inverted ahead of each of the previous 10 recessions in the country and is still extremely close to its most inverted position thus far this cycle at -8.5 bps.
BALANCE WATCH
After a late Tuesday decline, Wall Street futures were predicting slightly higher openings for the major S&P 500, Nasdaq, and Dow Jones indices.
After two days of losses, MSCI's broadest index of Asia-Pacific equities outside of Japan saw a 0.5% increase overnight. The previous day, the index had fallen to its lowest level in two years.
After the Taiwanese finance ministry announced on Tuesday evening that it will activate its stock stabilisation fund, Taiwanese stocks led the advances. On that day, the market had reached a 19-month low.
The Nikkei of Japan gained 0.5 percent at the close after falling nearly 2 percent the day before.
"However, the sharp decline in oil prices in July raises the possibility that June's inflation peaked. If so, a rate increase of 75 basis points on July 27 may mark the end of the Fed's most active phase of tightening "ANZ analysts stated.
However, according to our forecast, 50 basis point rate increases will still be necessary after the summer due to the underlying strength of core inflation and the continued deep negative real policy rates.
Both the 20 percent decline in global markets this year and the rise in the safe-haven U.S. currency were mostly caused by concerns that rising rates could paralyse the global economy or, worse, plunge it into recession.
The euro, which has lost more than 11% of its value since January, last traded at $1.0025 as investors continued to watch for a possible decline to its lowest level since 2002.
It fell as low as $1.00005 on Tuesday, narrowly missing the mark.
The dollar held steady versus other peers as well, with its index measure against the key competitors holding steady at 108.27.
Prices for oil stopped falling overnight. U.S. West Texas Intermediate crude was at $95.89 a barrel, while Brent crude was little changed at $99.60.
At $19,478 nevertheless, the top cryptocurrency bitcoin was up 0.23 percent and appeared to be on track to end a three-day losing run.
The price of 89 remained below the crucial psychological $20,000 threshold.
