Image: Reuters Berita 24 English - As a result of a larger-than-anticipated increase in U.S. inflation in May, concerns arose that the Feder...
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| Image: Reuters |
Berita 24 English - As a result of a larger-than-anticipated increase in U.S. inflation in May, concerns arose that the Federal Reserve may continue to tighten monetary policy for too long, causing a dramatic economic slowdown.
The Labor Department said that the U.S. consumer price index jumped 8.6 percent year-over-year in February, the highest increase since December 1981. Economists polled by Reuters anticipated an annual increase in CPI of 8.3 percent.
Many analysts and market participants anticipated that the statistics would indicate that inflation had peaked, but fuel prices reached an all-time high, food prices jumped, and rental costs increased.
"It was quite warm. This study indicates that underlying inflationary pressures continue to be pretty robust "Aichi Amemiya, senior U.S. economist at Nomura, stated as much.
The dollar reached a near four-week high versus a basket of currencies, as short- and intermediate-term yields reached levels not seen in more than a decade. Two-year rates, which are extremely sensitive to interest rate hikes, soared to 3.065 percent, the highest level since June 2008.
As investors feared that the central bank's measures to contain inflation would be so severe as to stifle economic development and corporate earnings, Wall Street and European equities declined by more than 2 percent.
The pan-European STOXX 600 index declined 2.69 percent, while the MSCI global equity market index declined 2.79 percent.
The Dow Jones Industrial Average sank 2.73 percent, the S&P 500 dropped 2.91 percent, and the Nasdaq Composite fell 3.52 percent on Wall Street. The three indices experienced their largest weekly falls since January, each falling almost 5 percent.
The S&P 500 is now down more than 18 percent from its record closing high on January 3, a decline that again brings it close to establishing a bear market as defined by a 20 percent decline in closing prices.
The stronger-than-expected CPI report has altered the Fed's calculus for September after "certainly" lifting rates by 50 basis points next week and in July, according to National Securities' chief market strategist Art Hogan.
Next week, analysts at Barclays and Jefferies anticipate the Fed to implement its first 75 basis point hike in 28 years.
Fed funds futures traders anticipate that the Fed's benchmark rate will increase to 3.69 percent from 0.83 percent in May of next year.
As evidence of a slowdown mounts, the Fed still has an opportunity to orchestrate a softer landing, according to Rhys Williams, chief strategist at Spouting Rock Asset Management.
"At least in the products economy, there are indications of a significant demand slowdown," Williams stated. "Houses are on the market for much longer, auto sales are not as robust, and transportation rates from Asia to here have plummeted."
JAPAN HINTS AT YEN INTERVENTION
After Shanghai and Beijing enforced new COVID-19 shutdown limits, demand and growth concerns increased in China, the second-largest economy in the world.
The yen rebounded from its lowest level in 20 years as Japanese policymakers made rare remarks about its weakness. Japan's government and central bank issued a rare joint statement expressing alarm over recent severe declines in the yen, the strongest indication to date that Tokyo may intervene to protect the currency.
The yen has reached 20-year lows vs the dollar and seven-year lows versus the euro on concerns that the BOJ will continue to lag behind other major central banks in abandoning its stimulus policy.
Eventually, the Japanese yen dropped by 0.05 percent to 134.41 per dollar.
The dollar index increased 0.852%, while the euro declined 0.9% to $1.0519.
Overnight in Asia, the MSCI broadest index of Asia-Pacific equities excluding Japan lost 0.9%.
Despite lockdown alerts, China's stock market rose because to continued strong buying by foreign investors and cautious optimism of regulatory liberalisation for technology companies.
China's blue-chip CSI300 index increased by 1.5 percent, while Hong Kong shares ended down by 0.2 percent.
Concerns that rising costs will push consumers to reduce demand and China's implementation of new COVID-19 lockdown measures led to a decline in oil prices.
U.S. oil futures closed at $120.67 per barrel, down 84 cents, while Brent futures settled at $121.06 per barrel, down $1.06.
As attention shifted to the economic threats posed by high inflation, gold prices rose significantly in tumultuous trade.
Futures on gold in the United States rose 1.2% to $1,875.50 per ounce.
