Australian stocks are expected to recover some of yesterday’s sharp losses, despite another drop in global markets on the prospect of more aggressive interest rate hikes in the US and Europe.
ASX futures were up 0.3 percent at 6,896 points by 7:20 a.m. AEST.
The Australian dollar rose slightly to 69 US cents, while the US dollar briefly hit a 20-year high.
US Federal Reserve Chairman Jerome Powell said on Friday that the US economy would need tight monetary policy “for some time” before inflation was brought under control.
His aggressive comments were delivered at the Jackson Hole central bankers summit in Wyoming and dashed hopes the Fed might pivot to more dovish rate hikes after recent data suggested inflation may be slowing.
Isabel Schnabel, a member of the board of the European Central Bank, added to the market concern.
He warned on Saturday that central banks risk losing public confidence and must act forcefully to rein in inflation, even if it drags their economies into recession.
‘Deeper recession’ with faster rate hikes
Investors, aware that rates would remain high even as recession risks increased, decided to sell their risk assets.
On Wall Street, the S&P 500 lost 0.7 percent to finish at 4,030 points, while the Nasdaq Composite fell 1.1 percent to 12,012 and the Dow Jones Industrial Average fell 0.6 percent to 32,100.
That added to sharp losses on Friday, in which the Dow Jones, S&P and Nasdaq fell 3 percent to 4 percent each.
The US market sell-off spilled over into the Australian market yesterday and led the ASX 200 to plunge 2 percent.
“The message from Jackson Hole was loud and clear and not what the markets were expecting,” Nordea chief analyst Jan von Gerich said.
“Central banks need convincing evidence that inflation is coming down. That’s bad news for the economy and risk appetite and increases the risk of a deeper recession if we get faster rate hikes.”
Investors raised bets on rate hikes in the US and eurozone, with markets pricing in a further chance of 0.75 percentage point hikes by the Fed and ECB in September.
Mega-cap growth and tech stocks like Apple and Microsoft fell more than 1% each and were among the biggest hurdles in the US stock market.
The CBOE Volatility Index (VIX), Wall Street’s gauge of fear, hit a seven-week high of 27.67 points.
Signs of recession and ‘exaggerated’ liquidation
“Friday’s sell-off was frankly overblown,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas.
“I know [Powell] he said he was going to play hardball with inflation, but honestly it’s not too different from what he’s been saying for the past few weeks.
“He was a little more aggressive, but I mean, gosh, who’s that surprised, really?
“I don’t see a lot of ups and downs here in the short term. I see a lot of volatility and that will probably be the case at least until we get past 9/21.” [US] rate hike”.
The two-year Treasury yield, which is particularly sensitive to interest rate expectations, briefly touched a 15-year high (3.45 percent).
They were also well above the 10-year US bond yield (at 3.13%).
Once again, the yield curve remains firmly inverted, meaning that shorter-dated bonds (two years) pay higher yields than longer-dated bonds (10 years).
Many consider this type of reversal to be a reliable sign of an impending recession.
Oil prices rise
Spot gold was flat at $1,737 an ounce.
Oil prices rose on speculation that the world’s biggest oil-producing nations could cut production at their next meeting.
Saudi Arabia, the top producer in the Organization of the Petroleum Exporting Countries (OPEC), last week raised the possibility of production cuts, which the sources said could coincide with an increase in supply from Iran if it achieves a nuclear deal with the West. .
OPEC+, made up of OPEC, Russia and allied producers, meets to set policy on September 5.
Brent crude rose 4.1 percent to $105.09 a barrel, while US West Texas Intermediate (WTI) crude rose 4.2 percent to $97.01.
ABC/Reuters
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