Image: Reuters Berita 24 English - Asian stocks fell on Monday, and the dollar kept going up. Investors are worried about global growth bec...
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| Image: Reuters |
Berita 24 English - Asian stocks fell on Monday, and the dollar kept going up. Investors are worried about global growth because most major banks keep raising interest rates, and China's small move to ease things up only brought attention to problems in its property market.
Later this week, Federal Reserve Chair Jerome Powell will be one of many policymakers at Jackson Hole. There is a chance that he won't do what investors want him to do, which is to change policy in a more dovish direction.
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 account for another rate hike in September. The only question is whether it will be 50 basis points or 75 basis points. Rates are expected to go up by the end of the year, to between 3.5 and 3.75%.
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.
China is an exception to the trend of tightening. On Monday, the central bank of China 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 another 0.7%, while Chinese blue chips fell 0.1%.
South Korea's KOSPI fell 0.7% and Japan's Nikkei fell 0.6%, but the sharp change in the yen has helped the Nikkei.
Futures for the EUROSTOXX 50 fell by 0.3%, and futures for the FTSE fell by a small amount.
Both the S&P 500 futures and the Nasdaq futures went down by 0.4%. 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
Last week's sharp rise in bond yields around the world did not help the prices of stocks. After a shocking inflation report, British 10-year yields went up by the most in five years, while a sky-high rise in German producer prices caused bund yields to jump.
Ten-year Treasury yields went up 14 basis points last week and were at 2.99% at the end of the week. The curve, which shows the risk of a recession, was still very steeply inverted.
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 worth 108.22 on a basket of currencies. Its best week since April 2020 was last week, when it went up 2.3%.
"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 137.27 yen, the dollar was strong after jumping 2.5% last week, while the euro was struggling at $1.0028 after falling 2.2% last week.
This week, the minutes of the European Central Bank's last policy meeting are due. Since they decided to raise rates by 50 basis points, the minutes are likely to sound hawkish.
Gold, which was worth $1,746 an ounce, has lost because the dollar has gone up.
Fears about global demand and the strength of the dollar also put pressure on oil prices.
Brent fell $1.23 to $95.49 per barrel, while U.S. crude fell 99 cents to $89.78.
