Australian stocks are poised to fall on growing fears that the central bank’s efforts to rein in rising consumer prices with interest rate hikes to reduce inflation will weaken the global economy and lead to a recession.
ASX futures fell 0.6 percent to 6,910 points as of 8:25 a.m. AEST.
The Australian dollar was stable at 68.8 cents on the dollar.
Wall Street and European markets plunged overnight, after Russia’s state-owned energy giant Gazprom said it would cut off natural gas supplies to Europe for three days at the end of the month.
The S&P 500 sank 2.1 percent to close the session at 4,138 points.
The Nasdaq fell 2.6 percent to 12.3812, while the Dow Jones Industrial Average fell 1.9 percent to 33,064.
Spot gold fell 0.8 percent to $1,734.32 an ounce.
Markets await Powell’s speech
A closely watched recession signal, the inversion of the US Treasury yield curve, widened overnight.
Basically, two-year US government bonds are paying investors a higher yield (3.32 percent), compared to 10-year bonds (3.02 percent).
In theory, people who lend money to the US government for longer periods of time should be paid a higher interest rate to reflect the higher risk.
In the last 50 years, whenever the yield curve “inverts” (or when short-term rates are higher than long-term rates in the US bond market), a recession tends to occur in USA within the next 24 months.
Investors were also concerned about a US Federal Reserve meeting later this week in Jackson Hole, Wyoming.
Attention will turn to Fed Chairman Jerome Powell’s speech on Friday (local time) at the Wyoming conference for more clues as to how aggressive the Fed is likely to be with future rate hikes.
“Powell is going to try to sound aggressive to lower inflation expectations and tighten financial conditions, so that will most likely be a negative catalyst for the market,” said Jay Hatfield, chief investment officer at Infrastructure Capital Management in New York. .
The Fed is likely to raise interest rates by 0.5 percentage point at its September meeting, according to economists polled by Reuters.
However, traders are torn between a 0.5-0.75 percentage point hike by the central bank after several policymakers recently dismissed expectations of a dovish turn and emphasized the Fed’s commitment to fight the inflation.
Volatile oil prices
Oil markets were extremely volatile overnight, with prices falling 4.5 percent to their lowest point overnight, as traders feared a global economic slowdown would hit demand.
But prices rebounded after Saudi Arabia’s energy minister said the Organization of the Petroleum Exporting Countries and its allies (OPEC+) could cut oil output to meet market challenges.
Brent crude futures were flat at $96.62 a barrel.
The latest disruption to Europe’s energy supply raised concerns about the continent’s economic outlook after hard-line signals from European Central Bank policymakers.
Russian natural gas supplies to Europe have shrunk by around 75 percent over the past year.
Meanwhile, the leaders of the United States, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal, the White House said on Sunday, which could allow sanctioned Iranian oil to return to global markets.
The US State Department said a nuclear deal was closer now than it was two weeks ago.