Stock markets fall again as a wave of interest rate hikes fuels recession fears | International Economy

The global rout in stocks, cryptocurrencies and other risky assets has accelerated amid growing concerns that uncontrolled inflation, high interest rates and slowing growth could combine to push the world into recession.

Shares in Asia fell on Friday at the start of what was likely to be another rough day for investors who were spooked by this week’s US Federal Reserve decision. Raising interest rates by the largest margin in nearly 30 years.

Other leading central banks, such as the Bank of England and the Swiss National Bank, followed suit – the latter in their first increase in 15 years – prompting economists to revise their growth forecasts lower.

“There are no worthy central bankers who will put anti-inflation credentials to the test and import higher energy inflation through a weaker currency,” said Stephen Innes of SBI Asset Management in Hong Kong.

Although the Bank of Japan announced on Friday that it was committed to its ultra-loose monetary policy, it added that higher interest rates elsewhere was “a very ominous signal for stock market investors…the global race to raise interest rates is not near the end of the line”.

Many believe that the United States may be in a recession by next year, raising the possibility of a broader global recession.

Stocks in the world’s largest economy suffered their worst start to a year in 60 years with the benchmark S&P 500 index down 23% since January after losing another 3.25% on Thursday. Analysts at JPMorgan said that the state of the S&P 500 index It implies that there is an 85% chance of a recession in the US.

The declines – which were reflected in the Dow Jones average, the high-tech Nasdaq and British and European markets – did nothing to boost confidence in the Asia-Pacific region. Tokyo’s Nikkei fell 1.6% and was on track to record its worst week of losses in two years, as was India’s Nifty. In Sydney, the ASX200 is down 1.8% on Friday afternoon.

The cryptocurrency’s trajectory shows no sign of abating with Bitcoin dropping 7.8% and Ethereum 8.45% worse. In addition, the Financial Times reported that Singapore-based crypto hedge fund Three Arrows Capital – which manages $10 billion – failed to meet margin calls this week amid falling crypto values.

Forecasts worsened due to the possibility of continuing conflict in Ukraine and the West’s economic war on Russia, which led to higher energy prices before winter in the northern hemisphere.

“The speed and degree of policy tightening may be too much for economies to handle, particularly given the commodity price shock currently in effect,” economists at NAB Bank in Australia said in a note on Friday. “As a result, recession risks for many major advanced economies, including the United States, are uncomfortably high.”

David Bassanese, chief economist at Betashares in Sydney, went further and predicted a recession in the US “in the next 12 months” due to persistent inflation and the Fed’s pledge to raise interest rates until inflation reaping returns to its peak.

As a result, he said, stock markets in the US will fall even more. There appears to be room for further declines in the stock markets. My base case is the final peak-to-trough drop in the S&P 500 which will be 35%, which means a drop to 3,100 from the closing peak of 4,796 on Jan. 3. It closed at 3,667 pips on Thursday.

The ongoing coronavirus lockdown in China is causing more problems for the global economy. The supply chain stumbles in the world’s second-largest economy that began during the pandemic are expected to continue at least until next year thanks to the shutdown of Shanghai and other key regions.

The bigger picture was that China was already facing problems ranging from a breakaway from the West amid geopolitical tensions, a battered and indebted real estate market, and uncertainty stemming from President Xi Jinping’s crackdown on big tech companies.

While the West increases interest rates, China’s central bank they were cut off The government in Beijing has thrown more stimulus into the economy, although it may not be enough to re-float the global economy as its massive $4 trillion stimulus did after the global financial crisis in 2008-2009.

Some criticized the Bank of England’s decision to raise interest rates by 0.25% on Thursday because it came too late to stop inflation in its tracks. One forecast says prices will rise 11% by October, and another report says food prices will rise can outgrow 15% In the fall.

Britain’s economy contracted 0.3% in May, according to figures released on Monday, and after falling 0.1%. It increased the chances of the economy sliding into recessionAccording to Paul Dills, chief economist at consulting firm Capital Economics.

The eurozone is also badly limp and riven by doubts about how to deal with Variation of real borrowing costs Between different countries which means Italy has to pay more than Germany despite having the same currency.

The Economic Information Unit (EIU) said in a report that although the United States recovered from the pandemic recession more quickly than other economies, there are signs of weak consumer spending. Its basic view is that growth in the US will stop stagnating, but it could be soon.

“The Economist’s primary forecast is that economic growth in the United States will slow sharply over 2022 and 2023, due to higher inflation, higher interest rates, and stalled growth elsewhere,” she said.

“We expect consumer demand to be elastic enough to avoid a full-blown recession, thanks in part to a tight labor market and strong household balance sheets. However, this does not mean that a recession is completely out of reach.”