After the announcement of record inflation in the United States, the markets expect sharp increases in US interest rates and fear a recession, which caused stocks to fall on Monday.
The European indices were displayed in bright red. Around 1:10 p.m., Paris lost 2.07%, Frankfurt 1.90%, Milan 2.22% and the European benchmark index Eurostoxx 50 2.18%. London fell by 1.63%. As for the Swiss Stock Exchange, its flagship index SMI yielded around 1:40 p.m. 1.58%.
After heavy losses on Friday, Wall Street was also heading for a sharply lower opening: the Dow Jones futures contract yielded 1.74%, that of the S&P 500 2.26% and that of the Nasdaq 2.94%.
Asia was no better off. Shanghai (-0.89%), Hong Kong (-3.39%) and Tokyo (-3.01%) fell, and the yen hit its lowest level against the dollar since 1998. New measures of confinement in Shanghai and Beijing are also creating new fears about the world’s second largest economy.
Inflation in the United States continued to accelerate in May and reached a new record high, causing investors to fear serious consequences for the economy, including a recession, according to bond market activity. “Inflation threatens to spiral out of control and global central banks may be inclined to trigger a recession to push demand below available supply, decimated by supply shortages and war,” comments Jochen Stanzl, for CMC Market.
The US central bank will hold its monetary policy meeting on Tuesday and Wednesday. An increase in its key rates of half a percentage point, or 50 basis points, seems certain but now the markets are worried about a stronger increase. According to the activity observed by Ipek Ozkardeskaya, an analyst at Swissquote on the markets, the probability that a rise of 75 basis points will be decided increases significantly and a rise of 100 basis points is even starting to be considered according to her.
The assumption of such aggressive rate hikes is causing fears of a recession next year for the US economy. Thus the interest rate on US 5-year debt exceeds that of the 10- and 30-year maturities, and the yield on 2 years is at the same level as long-term rates after having briefly exceeded them for the first time since April. .
In financial logic, a long-term investment is more risky and therefore enjoys a higher return. The current trend, known as the “yield curve inversion,” shows increased short-term risk and is “a key indicator of an impending recession,” according to CMC Markets analyst Michael Hewson.
Bitcoin, yen and rupee at lows
Another sign of investor risk aversion, bitcoin fell 12.59% to $23,905 around 1:05 p.m., its lowest since the end of 2020.
Conversely, the dollar was sought after as a safe haven, and further strengthened by the scenario of aggressive monetary tightening by the Fed.
Shortly after 6 a.m., the dollar rose to 135.19 yen, a record against the Japanese currency since October 1998. At 1 p.m. the yen was trading at 134.55 yen per dollar, down 0.09% . The Indian rupee plunged Monday to an all-time low of 78.28 rupees to the dollar.
The euro lost 0.53% to 1.0463 dollars.
Widespread sale
Investors are fleeing the equity markets and the sale of securities affects all sectors. Starting with tech (-12.05% for Deliveroo), but also the automobile (-4.08% for Renault), tourism (-3.84% for Accor), the mining sector (-5.46 % for Glencore) or luxury (-3.24% for Hermes).
Even the banks were down despite the rise in interest rates which increased their profitability. Crédit Agricole lost 3.90%, Lloyds 1.95%, Banco Santander 3.19% and Unicredit 2.50%.
Oil down
The possibility of further lockdowns in major Chinese cities was dragging oil prices down.
Around 1:00 p.m. GMT, the price of a barrel of Brent from the North Sea fell 1.46% to 120.54 dollars and that of a barrel of American WTI lost 1.41% to 118.96 dollars.
This article has been published automatically. Sources: ats / awp / afp