As economic downturn shadows loomed over Europe on Friday and underlined the improved comparative performance of the U.S. economy, Asian markets had been left in a state of ambiguity.
The MSCI’s biggest indicator of Asia-Pacific equities outside Japan decreased by 0.1% to end a whole week down 1%, reflecting new worries over the strength of China’s economy. The yuan was headed for perhaps the worst week since May. The yuan dropped below the critical 6.8-to-dollar level and was only inches away from hitting a 2-year low.
South Korea (.KS11) shed 0.4%, but Chinese blue chips (.CSI300) were unchanged due to prospects for a boost. Japan’s Nikkei (.N225) maintained its stability partly due to the yen’s continued decline.
While Nasdaq futures declined 0.2%, S&P 500 futures dipped 0.2% and were then slightly altered for the week after failing to surpass the 200-day rolling average. FTSE futures grew 0.2% but EUROSTOXX 50 futures fell 0.2%.
Hardly fewer than 4 U.S. Federal Reserve experts warned that there was still work to be done on lending rates, with the biggest distinction would be how quickly and high to go. This raised the prospect of a greater cost of borrowing, which hovered over the markets.
Markets anticipate a ½-point increase in September, but an increasing risk points to a 75-basis-point increase, which has a 2/5 chance right now. Rates are anticipated to rise at 3.5% or higher; however, some Fed officials are pushing for 4% or even higher.
The job market and inflation indicators do not show any signs of slowing down enough for the Fed to claim victory over inflation.
The prediction for the year’s end fed funds rate has indeed been updated by 25 basis points to 4.0%, and three 50 basis point increases are now anticipated for the rest of 2022.
All of this emphasizes the significance of Fed Chair Jerome Powell’s address on August 26 in Jackson Hole, which is often a landmark occasion on the central bank agenda.
With 2-year yields 33 basis points lower than 10-year rates and crisis indicators blazing, the bond market is unmistakably on the pessimistic side. Europe and Asia are both experiencing the “R” panic. The only thing that is keeping Chinese economic data from being gloomy this week is the possibility of administrative relief and government support. On Friday, China declared a drought warning.
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