Strong US employment data on Friday suggested the Federal Reserve has even greater scope to raise interest rates aggressively to combat inflation, which caused global shares to slide for a third day on Monday.
The US economy added 428,000 jobs in April, in line with the downwardly revised 428,000 gain in March, and beating forecasts for a 391,000 increase. Nonfarm payrolls rose by over 400,000 for the 12th month in a row.
The futures market shows a 50% chance that US rates will reach 3.00% by the end of the year. The chances were close to 12% six weeks ago. Since then, data releases have shown inflation has notbated, but economic growth has been reasonably resilient, which could give the Fed room to raise rates faster.
With inflation running hot, it will take a large risk-off move to get the Fed to re-pivot dovish.
There is almost no downside for Fed in acting aggressively, and even if they expect inflation to head lower in coming quarters, why not take credit for the dis-inflationary successes?
The S&P 500 fell between 1.2% and 1.6%, while the Dow Jones fell between 1.2% and 1.6%. The index fell for a third day.
With a set of rapid increases in US interest rates now on the cards, the dollar hit its highest level in almost 20 years against a basket of major currencies, making US assets more attractive to investors.
The benchmark 10-year US Treasury yield rose 4 basis points on the day to 3.173%, its highest in three years, while the dollar index was up 0.4% at 104.35.
US consumer inflation is on Wednesday. The rate is expected to ease to 8.1% in April from 8.5% in March.
Lower gasoline and used car prices should knock the headline and core inflation off their highs. ING strategists led by Chris Turner said in a note that larger-than- expected falls could suggest that the Fed doesn't need to be as aggressive in hiking plans.
In addition to the war in Ukraine and the disruption to the flow of key commodities from crude oil to steel and sunflower oil, investors are having to grapple with the risks to the economy from the outbreak of COVID-19 in China.
The Chinese trade data shows that exports hit a two-year low in April.
With China continuing to pursue its misguided zero-COVID policy, the restrictions in Shanghai are already having a chilling effect on economic output there, as well as port activity, or rather the lack of it, as container ships continue to sit off the Chinese coast waiting to be unloaded.
The pan-European Stoxx 600 fell 1.4%, led by losses in basic resources and technology stocks, while in Asia, the CSI 300 fell 0.8%.
Oil futures fell due to concern over the economic outlook. Saudi Aramco, the world's largest exporter, cut its official selling prices to Asia for June, a sign that traders think there will be less demand. The price of crude was last down by 0.8% at $111.50 a barrel.
It was the first time since late January that the price of bitcoin fell. On the day, it was 3.3% lower at $33,583. It has lost one-third of its value so far this year.
An expert explains why you should add private equity to your portfolio and how to do it without having millions of dollars.
All Rights Reserved © 2024
