by Wayne Cole
SYDNEY (Reuters) – Asian stocks fell and the dollar hit a two-decade high on Monday as US stock futures extended their slide on interest rate concerns, while a tight shutdown in Shanghai stoked fears about global economic growth and recession.
Analysts warned in Barclays (color :).
“This creates the bleak prospect of persistent inflation forcing central banks to raise interest rates despite a sharp slowdown in growth.”
China’s trade data for April wasn’t as bad as feared, with exports up 3.9% y/y and imports flat.
However, there was no complacency in China’s COVID-free policy with Shanghai tightening a citywide COVID lockdown of 25 million residents.
Speculation that Russian President Vladimir Putin may declare war on Ukraine in order to call up the reserves during his D-Day speech also hurt market sentiment. Putin has so far described Russia’s actions in Ukraine as a “special military operation,” not a war.
Stock futures led the way with a 1.1% drop, while Nasdaq futures were down 1.0%. US 10-year bond yields rose to a new high of 3.15%.
EUROSTOXX 50 futures contracts are down 1.5% and futures contracts are down 0.7%.
MSCI’s broadest index of Asia Pacific shares outside Japan was down 1.3% and 2.4%. Chinese blue chip stocks fell 0.8%, while the yuan touched an 18-month low to trade at 6.7049 per dollar.
Investors were also nervous ahead of the US consumer price report due on Wednesday as only a slight dip in inflation is expected, and certainly nothing to stop the Federal Reserve from rising at least 50 basis points in June.
Core inflation is actually expected to rise 0.4% in April, up from 0.3% the previous month, even as the annual pace of inflation eases slightly due to core effects.
“In the first quarter, the annual monthly change in core CPI was 5.6%,” ANZ analysts noted. “That’s too high for the Fed and we believe the FOMC will not be comfortable with inflation until the core figure dips to around 0.2%m/m on a sustainable basis.
“The Fed is not the only central bank facing inflationary pressures. Increasingly, the guidance issued by the European Central Bank is becoming more hawkish.”
dollars in demand
Fed fund futures were priced at rates as high as 1.75-2.0% in July, from the current 0.75-1.0%, climbing all the way to about 3% by the end of the year.
The notebook is full of Federal speakers this week, which should give them plenty of opportunity to continue the hardcore chorus.
The US dollar’s strict forecast saw 20-year highs on a basket of major currencies reaching 104.080.
“Risk sentiment is fragile and yield differentials continue to point to further upside in the dollar index,” said Sean Callow, chief FX analyst at Westpac.
“We are looking for sustained demand for DXY on dips, with 104 already under investigation and still likely to head towards 107 multiple weeks.”
The euro was stuck at $1.0510 and above recent lows at $1.0481, while the dollar was very much in control against the Japanese yen at 131.07.
Oil prices plummeted after the Group of Seven nations committed on Sunday to ban or phase out Russian oil imports over time.
After the initial pullback, another quote was quoted 12 cents higher at $112.51 while adding 4 cents to $109.81.
Gold was slowing at $1,872 an ounce, having struggled to gain any momentum as a safe haven recently.
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