Fears Of A Rate Hike Cause Stocks To Decline And The Dollar To Climb

On Monday, Asian markets sank the most in two weeks as investors worried about quick rate hikes and its impact on the dollar price in the United States and the weakening economy, while the euro found support following the re-election of French President Emmanuel Macron.

Dollar To Climb on Fears Of A Rate Hike

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) sank 1.6 percent to a 6-week low, whereas the Chinese yuan’s sharp decline was accelerated by a government intervention.

The Nikkei (.N225) in Japan plummeted 1.9 percent. The Hang Seng Index (.HSI) in Hong Kong plummeted by 3%. S&P 500 futures were down 0.8 percent, while FTSE and European futures were down more than 1%. The price of oil has dropped by 2.7 percent.

The euro remained mostly unchanged at $1.0802, despite broad dollar advances elsewhere, as it hit a nearly two-month high against a faltering pound.

At the close of last week, U.S. stocks fell as Federal Reserve Chairman Jerome Powell hinted a 50-point rate increase was on the table at the May conference, while Saint Louis Fed President James Bullard mentioned the possibility of 75-point increases.

Worries regarding rates and downturn, according to Candace Browning, head of global research at Bank of America, are becoming the main risks for investors, with a special emphasis on demand.

Investors are worried about the capability of low-income consumers to spend due to rising food and gasoline prices, as well as the expiration of major stimulus programs.

The Treasury market remained stable, with the benchmark 10-year yield remaining at 2.8581 percent and the two-year yield remaining at 2.6399 percent, down from last week’s highs.

As fears rise about the economic impact of Shanghai’s closure, China’s harsh restrictions have begun to spread to Beijing, where more than a dozen buildings have been closed down.

Authorities back for China’s slowing economy has disappointed investors, with the blue-chip CSI 300 index (.CSI300) plunging to its lowest point since June 2020.

On Monday, the midpoint of China’s domestic currency trading zone was set at its lowest point in eight months, seen as an official acknowledgment of the yuan’s recent decline, and it was promptly sold to a one-year low of 6.5225 per dollar.

The dollar was also on the rise abroad, however, commerce in Australia and New Zealand was slowed by public holidays. The Australian dollar lost 0.8 percent to $0.7185, a six-week low, while the New Zealand dollar fell 0.4 percent to $0.6603, a two-month low.

The pound sank 0.3 percent last week to an 18-month bottom of $1.2792, driven down by disappointing retail sales figures.

Brent crude futures sank 2.7 percent to a 2-week bottom of $103.78 each barrel. Crude oil futures in the United States declined 2.6 percent to $99.38 a barrel.

In Asia, copper and iron ore prices declined, but soybean oil prices rose following an Indonesian ban on palm oil exports.

The week ahead will be highlighted by U.S. growth data on Thursday, European inflation data on Friday, and a Bank of Japan monetary policy conference.

Investors anticipate 1.1 percent growth in the United States, which is slower than the COVID-19 rebound-juiced estimates of previous years but likely solid enough to withstand rate hikes.

The BOJ meeting will be widely watched for any changes to economic estimates or any indications of a policy response to the yen’s recent drop of more than 10%.

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