Berliner Boersenzeitung - Asian, European markets fall again as traders eye more rate hikes

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Asian, European markets fall again as traders eye more rate hikes
Asian, European markets fall again as traders eye more rate hikes / Photo: Kazuhiro NOGI - AFP

Asian, European markets fall again as traders eye more rate hikes

Equity markets sank Friday and oil extended a sharp selloff after a string of interest rate hikes by central banks revived worries about the global economy.

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Eyes are also on Tokyo after forecast-beating inflation figures fuelled speculation on whether the Bank of Japan (BoJ) will shift away from its ultra-loose monetary policy that has dragged on the yen.

The optimism that characterised the first half of June -- fuelled by hopes the Federal Reserve was close to the end of its hiking cycle -- has given way to concern that officials still had several more in them as they battle stubborn price rises.

Last week's decision to stand pat after 10 straight increases added to the sense of hope, but warnings Wednesday from boss Jerome Powell that more work was needed took the wind out of traders' sails.

He told US lawmakers that two more this year was "a pretty good guess".

His comments came as the Bank of England (BoE) lifted rates more than expected, while officials in Switzerland and Norway also tightened. That followed hikes last week in the eurozone, Australia and Canada.

And Turkey, which for two years had followed President Recep Tayyip Erdogan's unorthodox policy of dealing with high inflation by cutting rates, changed course and nearly doubled its borrowing costs.

However, some observers are sceptical the Fed will follow through with its warnings as US inflation continues to subside, falling to 4.0 percent in May from 4.9 percent in April. The Fed's target is 2.0 percent.

- Yen under pressure -

Kristina Hooper, at Invesco, said two hikes this year risked causing a "significant recession".

"There is a lengthy lag between when monetary policy is implemented and when it actually shows up in the real economy data," she said. "We haven't seen much of an impact yet because of that lag.

"That's why we have to worry so much about overkill."

Still, Treasury Secretary Janet Yellen said Thursday she thought the threat of recession had subsided, citing a resilient labour market and slowing inflation.

While the S&P 500 and Nasdaq edged up, there was little excitement on Wall Street.

And Asia extended the week's poor run.

Hong Kong, Tokyo and Sydney each lost more than one percent, while Seoul, Singapore, Mumbai, Bangkok, Jakarta, Manila and Wellington were also in the red.

London sank as data showed UK retail sales unexpectedly rose last month, adding inflation worries and putting pressure on the BoE to keep lifting rates.

Frankfurt and Paris also retreated.

Oil prices also fell, having tumbled around four percent Thursday on fresh demand concerns caused by the prospect of rates going ever higher, while China's ongoing struggles were also weighing on sentiment.

Traders are keeping an eye on Beijing after a hoped-for raft of stimulus measures for the economy came to nothing. While the central bank has cut borrowing costs there has been very little by way of policy detail from officials.

However, observers said the government's options were limited.

"While most expect additional stimulus coming down the pipeline from mainland policymakers, elevated debt levels and the 'housing is for living in, not for speculation' mantra likely means that any property and infrastructure stimulus will not be of the large-scale variety," said SPI Asset Management's Stephen Innes.

And Vishnu Varathan, at Mizuho Bank, told Bloomberg Television that equities were struggling because officials "probably can't ignite animal spirits to the same extent where stimulus will get them into high growth multipliers".

The yen was stuck around 143 per dollar, a level not seen since November, while it was wallowing at 15-year lows against the euro, as the BoJ refuses to move from its accommodative policy even as others keep lifting rates.

While inflation remains at multi-decade highs, officials say that is down to temporary factors.

But they are coming under increasing pressure to tighten monetary policy, particularly the so-called yield curve control in which it adjusts the band in which rates for 10-year government bonds fluctuate.

Kelvin Wong at OANDA said: "Japan's Ministry of Finance officials and politicians may start to get 'uncomfortable' with the swift up move of (the dollar against the yen) and put pressure on BoJ to intervene."

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 1.5 percent at 32,781.54 (close)

Hong Kong - Hang Seng Index: DOWN 1.7 percent at 18,889.97 (close)

Shanghai - Composite: Closed for holiday

London - FTSE 100: DOWN 0.6 percent at 7,458.19

Euro/yen: DOWN at 155.50 yen from 156.33 yen on Thursday

Euro/dollar: DOWN at $1.0867 from $1.0958

Pound/dollar: DOWN at $1.2710 from $1.2746

Dollar/yen: DOWN at 142.96 from 143.13 yen

Euro/pound: DOWN at 85.50 pence from 85.94 pence

West Texas Intermediate: DOWN 1.9 percent at $68.18 per barrel

Brent North Sea crude: DOWN 1.8 percent at $72.83 per barrel

New York - Dow: FLAT at 33,946.71 (close)

(K.Müller--BBZ)