The Fed is widely expected to opt for a hike of at least 50 basis points
Another hot inflation report pressured Wall Street stocks strongly on Friday, with consumer prices rising 8.6% year-over-year versus 8.3% expected. Adding to a downbeat tone among investors, consumer sentiment hit a record low, flaming concerns about a potential recession for the US economy. In a broad sell-off, the Dow Jones shed 2.73%, the S&P 500 fell 2.91% and the Nasdaq Composite sank 3.52%. In individual stocks, shares of Apple fell nearly 4% while Amazon gave up more than 5% ahead of the weekend.
Asian stock markets sank on Monday, shedding more than 2% as investors digested the US inflation report which implies that the Fed will persist in raising interest rates. The Shanghai Composite in China lost 0.89%, Tokyo’s Nikkei 225 declined 3%, South Korean Kospi gave up 3.52% and the Hang Seng in Hong Kong skidded 3.39%. Regional investors were also spooked by a statement from a spokesperson for the Beijing municipal government who warned over the weekend that the recent outbreak is “strongly explosive in nature and widespread in scope”.
In Europe, equities opened lower to start the week as global sell-off continued amid growing fears that the Fed may need to hike rates even more aggressively to fight inflation. The pan-European Stoxx 600 fell 2% in early trade, with all sectors trading in negative territory. On the data front, the U.K. economy contracted by 0.3% month-on-month in April, adding to recession fears. Investors start to shift focus towards the Fed meeting due on Wednesday as the central bank is widely expected to opt for a hike of at least 50 basis points.
Meanwhile, the US dollar has been rallying for the fifth session in a row on Monday. The USD index regained the 104.00 figure last week, extending gains to 104.75 earlier today before retreating marginally in recent trading. The buck looks set to continue the ascent in the near term, especially as the Fed meting looms. EURUSD failed to hold above the 1.0500 figure and thus plunged to nearly one-month lows around 1.0455. Now, the market focus shifts towards the 1.0430 intermediate support, followed by the 1.0400 mark last seen in mid-May.