Asian equity markets are expected to suffer from a sharp selloff in US stocks on fears of a potential economic recession, one day after the Fed increased the interest by 50-basis points for the first time in two decades. The 10-year US Treasury bond yield topped 3% as the bonds selloff resumes. The Bank of England raised the official bank rate by 25-basis points but indicated a recession in 2023, which intensified the equity markets selloff.
The equity markets’ big swings indicate investors are highly uncertain about the current global economic outlook on concerns of rising rates and persistent growing inflation, which may start to drag demands. In short, an inflation-induced economic recession. However, the markets’ reactions evolved with panic selling as few fundamental factors had been changed. From a technical perspective, the major indices still hold key support.
Australia and New Zealand day ahead
SPI futures slid 1.54%, pointing to a lower open in the ASX. The local markets may suffer from the broader selloff, which could cause a volatile session. The recent banks’ strong earnings may help to support the sentiment.
Macquarie Group hit the ball out of the park with its release of FY22 results. With a whopping net profit of $A4.706b (up 56% on the prior year) and revenue of up $17.324b (up 36% on the prior year). The world’s largest infrastructure asset manager commented that they will maintain a cautious and conservative stance to position themselves in the current environment. A 40% franked dividend of $3.50 per share was declared.
The NZX 50 was down 1.14% at the open. The key factor that weakened investment sentiment was an accelerating devaluation of the NZD which will put upside pressure on import prices and cause domestic inflation, which supports more aggressive tightening moves from the RBNZ.
US and EU stock markets overnight
The Dow Jones Industrial Average fell 3.12%, the S&P slid 3.56%, and the Nasdaq tumbled 4.99%.
Broader markets finished in red, with growth stocks leading the losses. Amazon, Meta Platforms, and Netflix Inc. all plunged more than 7%. Apple fell 5.8%, Microsoft and Alphabet Inc. were down more than 4%. Tesla Motors declined more than 8%.
E-commerce stocks plummeted on weak guidance for the second quarter due to post-pandemic softening demands. Shopify tumbled 14.81%, eBay dropped 12%, and Esty plunged 17.08%.
On the economic front, the US 30-year mortgage rate rose to 5.56%, a 13-year high, challenging the affordability of households.
European major indices fell on risk-off sentiment. The Stoxx 50 fell 0.76%, CAC 40 slid 0.43%, DAX declined 0.49%, and the FTSE 100 was slightly up 0.90%.
Crude oil prices were little changed on Thursday. The OPEC and allies extended their plans to increase oil production by 432,000 barrels, which had a minor impact on oil prices. Slowing economic growth caused by China’s ongoing lockdowns and rising rates also weighed on sentiment on the demand side. WTI crude futures were slightly up 0.72%, to US$108.59 per barrel, and Brent futures rose 0.97%, to US$111.21 per barrel.
Natural gas continued to rise, up 4.98 %, to US$8.83 per MMBtu, making a 20% increase month to date.
Precious metals cut early gains due to a strong US dollar but finished higher. NYMEX gold futures were up 0.45%, to US$1,877.30 per ounce after hitting the intraday high at $1909.93. Silver slightly rose 0.09%, to US$22.50 per ounce.
The USD index resumed gains, up 0.97%, to 103.585 on spiking US bond yields.
The British pound tumbled on the BOE rate hike of 25 basis points while expressing concerns about an incoming economic recession. GBP/USD plunged 2%, to 1.2369. All other currencies rose against the USD. USD/JPY climbed back up to above 130. The Eurodollar erased gains from the previous day, down 0.75%, to 1.0548 after hitting the intraday low at 1.0490, which is pivotal support.
All commodity currencies weakened against the greenback. AUD/USD fell 2%, slip back to 0.7113, and NZD/USD was down 1.78%, to 0.6426. The Canadian dollar also fell against the USD despite strong oil prices. USD/CAD was up 0.67%, to 1.2837.
Bond yields spiked. The 10-year US Treasury yield topped 3%, the 2-year Treasury yield rose to 2.70% and the 30-year bond yield rose to 3.12%.
The Australia 10-year bond yield was up to 3.38%, thanks to the RBA’s hawkish rate hike.
The Crypto markets tumbled as risk-off sentiment intensified the risk assets’ selloff. Bitcoin fell 8.21%, to $US36,565.34 and Ethereum dropped 6.67%, to US$2,749.44 in the last 24 hours. The whole market cap of Cryptocurrencies dropped 7.04%, to US$1.68 trillion.