Global markets dive on heightened recession fears

Global markets dive on heightened recession fears

Web Desk
June 13, 2022

Global markets dive on heightened recession fears

The dollar rose against major rivals, owing to its status as a safe-haven investment.
The possibility of more Covid restrictions in China’s biggest cities also weighed on crude futures.
Bitcoin tumbled to an 18-month low under $25,000 as investors shunned risky assets.

Global markets, oil prices, and bitcoin all fell on Monday as recession fears grew due to galloping inflation.

The dollar, on the other hand, rose against major rivals, owing to its status as a safe haven investment and predictions of aggressive interest-rate hikes by the Federal Reserve.

The US currency struck a 24-year peak against the yen, while it broke above 78 Indian rupees for the first time. It jumped one percent 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 with falls of around two percent before Wall Street reopens.

London took a hit also from data showing the UK economy contracted in April for the second month in a row.

World oil prices, whose surge has contributed massively to soaring inflation, slid about 1.5 percent 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.

– Bitcoin crash –

Bitcoin tumbled to an 18-month low under $25,000 as investors shunned risky assets in the face of the vicious global markets selloff.

The unit took a heavy knock also from the news that cryptocurrency lending platform Celsius Network paused withdrawals, citing volatile conditions.

“It is not very surprising to see such a strong downturn as we have noticed an increased correlation over the last few years between traditional stocks, which have also tanked recently, and the cryptocurrency market,” noted XTB chief market analyst Walid Koudmani.

Investors were left surprised Friday when data showed US inflation jumped to 8.6 percent in May, the fastest pace in more than 40 years, as the Ukraine war further fuelled energy and food prices.

The figure has fueled intense speculation that the Fed will now consider a single 75-basis-point interest-rate hike.

With the Fed having to be more active, there is a danger that the US economy may enter a slump 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.