Major markets dive on heightened recession fears

LONDON, AFP: Global equities and oil prices plunged Monday on heightened recession fears triggered by runaway inflation.

The dollar, however, gained versus major rivals, benefiting from its status as a haven investment and expectations of aggressive interest-rate hiking from the Federal Reserve.

The dollar struck a 24-year peak against the yen before retreating, while it broke above 78 Indian rupees for the first time. It jumped 1% versus the pound.

“The hangover from a higher-than-expected US inflation reading is continuing to cause scissoring pain throughout the markets, as it extinguishes the hope the US Federal Reserve might be able to take its foot off the pedal on interest rate rises,” noted AJ Bell Investment Director Russ Mould.

US and European stocks had already tumbled Friday following the inflation data, with Asia following suit Monday.

European stock markets extended pre-weekend losses, while London took a hit also from data showing the UK economy contracted in April for a second month in a row.

Wall Street opened sharply lower, with the blue-chip Dow down around 2% and the tech-heavy Nasdaq falling around 3%.

World oil prices, whose surge has contributed massively to soaring inflation, slid abound 1% as the high cost of living increases recession expectations.

The possibility of more COVID restrictions in China’s biggest cities also weighed on crude futures as the country is a major oil consumer. Fresh coronavirus outbreaks in Shanghai and Beijing have seen authorities reimpose containment measures.

Investors were left surprised Friday when data showed US inflation jumped to 8.6% in May, the fastest pace in more than 40 years, as the Ukraine war further fuelled energy and food prices. The reading has led to fervent speculation that the Fed will now be contemplating a single interest-rate lift of 75 basis points at its meeting this week.

With the Central Bank forced to be more aggressive, there is heightened concern that the US economy could be sent into recession next year.

“The market is now thinking much more about the Fed driving rates sharply higher to get on top of inflation and then having to cut back as growth drops,” said SPI Asset Management’s Stephen Innes.