Image: Reuters Berita 24 English - Monday, stocks went down and the dollar kept going up. Investors are worried about global growth because ...
 |
| Image: Reuters |
Later this week, U.S. Federal Reserve Chair Jerome Powell will be one of many policymakers at Jackson Hole, and there is a chance that he won't meet investor hopes for a "dovish" policy shift.
Jan Nevruzi, an analyst at NatWest Markets, said, "We expect a reminder that more tightening is needed and there is still a lot of work to be done on inflation, but no explicit commitment to a specific rate hike action for September."
"That kind of boring delivery could be boring for markets."
Futures prices already reflect the fact that there will be another increase in September. The only question is whether it will be 50 basis points or 75 basis points. Rates should be between 3.5% and 3.75% by the end of the year.
A poll of economists by Reuters predicts that the Fed will raise interest rates by 50 basis points in September, though the odds are more likely to be higher.
Monday, the STOXX index of Europe's 600 biggest stocks fell 0.97 percent, and most regional markets were in the red as investors worried about hawkish signals from European Central Bank policymakers.
Bundesbank President Joachim Nagel told a German newspaper that the European Central Bank must keep raising rates even though a recession in Germany is becoming more likely. This is because inflation will stay too high until 2023.
One country that isn't following the trend is China. On Monday, the country's central bank cut some key lending rates by 5 to 15 basis points to help a slowing economy and a stressed housing market.
Uncertainty about China's economy sent the yuan to its lowest level in 23 months and put pressure on stocks all over the region.
MSCI's broadest index of Asia-Pacific stocks outside of Japan fell by 0.9% more, but Chinese blue chips rose by 0.7%.
South Korea's KOSPI fell 1.2% and Japan's Nikkei fell 0.5%, but the sharp change in the yen has helped the Nikkei.
With S&P 500 futures down 1% and Nasdaq futures down 1.35 %, it looked like the bearish mood would spread to the U.S. markets.
The S&P 500 hasn't been able to get above its 200-day moving average, which is around 4,320, and it lost 1.2% last week.
In BofA's most recent survey of investors, most were still pessimistic, but 88% thought inflation would go down over time. This was the highest percentage since the financial crisis.
"That helps explain this month's shift away from defensives and into equities, tech, and discretionary," said Michael Hartnett, a strategist at BofA. "Investors are still long defensive stocks and short cyclical stocks, compared to the past."
Given that interest rates were going up, he stayed a cautious bear and said that S&P rallies above 4,328 should be ignored.
YIELDS SPIKE
Monday, the yields on government bonds in the Euro Zone went down a little bit, but they were still near their highest levels in a few weeks because investors were worried about inflation and expected more monetary tightening.
Yields on 10-year German government bonds went down 3 basis points, to 1.99%. At 1.242% on Friday, it was the highest since July 21.
Last week, bond yields around the world went up because of all the bad news about inflation. British 10-year yields went up by the most in five years, and bund yields also went up because of news about prices going through the roof.
When there is a lot of uncertainty in the world, the U.S. dollar tends to go up because it is the safest place to put your money. It is now at 108.44 on a basket of currencies. Its best week since April 2020 was last week, when it went up 2.3%. [USD/]
"The USD could go above $110.00 this week if the August flash PMIs for the major economies show that economic growth or activity has slowed or shrunk even more," said Joseph Capurso, head of international economics at CBA. These surveys of manufacturing will be released on Tuesday.
"We also expect Powell to say something tough about inflation, which is in line with what other USD-supporting Fed officials have said recently."
At 136.78 yen, the dollar was strong after jumping 2.5% last week, while the euro was struggling at $1.0035 after dropping 2.2% last week.
This week, the minutes of the last policy meeting of the European Central Bank are due. Since they decided to raise rates by 50 basis points, the minutes are likely to sound hawkish.
Gold, which was worth $1,737 an ounce, has lost because the dollar has gone up. [GOL/]
Oil prices were also under pressure because of worries about global demand and the strength of the dollar, as well as talks between the US and the EU about Iran's response to the latest proposal for a nuclear pact. [O/R]
Brent fell $1.64 to $95.1 per barrel, while U.S. crude fell $1.77 to $89.45.
