Shares in the Asia-Pacific traded lower on Monday as investors digest comments from Powell at a top central bankers’ conference on Friday last week. European markets also are set to open lower after U.S. Fed Chair Jerome Powell signalled higher interest rates would likely persist in a bid to tame soaring inflation. U.K. markets are closed for a holiday.
The Nikkei 225 in Japan lead the decline on Monday as it slipped 2.66%, the South Korea’s KOSPI fell 2.18%. In Australia, the S&P/ASX 200 fell 1.95%. The Singapore’s FTSE Straits Times Index was down 0.80%.
Hong Kong’s Hang Seng index shed 0.84% and the mainland China’s Shanghai Composite rose 0.13% after recovering slightly.
On Friday in the U.S., the Dow Jones Industrial Average plunged 1,008 points or 3.03% to 32,283.40. The S&P 500 fell 3.37% to 4,057.66 and the Nasdaq Composite dropped 3.94% to 12,141.71.
Oil prices rose on Monday, on speculation OPEC+ could cut output at a meeting on Sept 5.
Expectations that OPEC and its allies to restore market balance in response to the revival of Iran's nuclear deal supported prices, coupled with rising demand amid soaring natural gas prices in Europe spurring power generators and industrial users to switch to diesel and fuel oil, helped offset a dire outlook for U.S. growth.
U.S. WTI crude futures were up 0.60%, to $93.57 a barrel, adding to a gain of 2.5% last week. Brent crude futures meanwhile rose 0.80%, to $101.40 a barrel, extending last week's gain of 4.4%.
The aggressive chorus from central banks lifted short-term yields globally, while further inverting the Treasury curve as investors priced in an eventual economic downturn.
The two-year yields rising to 3.489%, the highest since late 2007, while the 10-year yields stood at around 3.127%. Yields had also climbed across Europe with double digit gains in Italy, Spain, and Portugal.
The safe-haven U.S. dollar meanwhile shot to a fresh two-decade top of 109.450 against a basket of major currencies, breaching the previous high from July. It was last at 109.179. The U.S. dollar surged after Federal Reserve Chair Jerome Powell signalled interest rates would be kept higher for longer to bring down soaring inflation.
In cryptocurrencies, Bitcoin extended its drop below $20,000 level as investor sentiment dipped, and was last down 3% to $19,831.
The rise of the dollar and yields has been a drag for gold. The spot gold had fallen 0.90% to $1,723.50 per ounce, after falling 1.2% last Friday. U.S. gold futures also down 0.90% at $1,733.80.
Spot silver fell 1% to $18.69 per ounce, platinum slipped 1% to $855.27, and palladium was flat at $2,110.19.
Shares slid on Monday as a mounting risk of more aggressive rate hikes in the United States and Europe shoved bond yields and the dollar sharply higher while also stoking fears of a global recession and tested equity and earnings valuations.
Investors were focused on the Federal Reserve's conference last Friday. In his much-anticipated annual policy speech at Jackson Hole, Wyoming, he warned that Americans are headed for a painful period of slow economic growth and possibly rising joblessness, as the Fed raises interest rates to fight high inflation. Rising interest rates will cause “some pain” to the U.S. economy, saying higher interest rates likely will persist “for some time.”
Much might depend on what the August payrolls figures show this Friday when analysts are looking for a moderate rise of 285,000 following July's blockbuster 528,000 gain.
Powell’s comments were also echoed by ECB board member Isabel Schnabel over the weekend. Schnabel reaffirmed the view that central banks must now act forcefully to combat inflation, even if that drags their economies into recession.
Markets are now pricing in of a 75-bps rate hike at the next Fed and ECB meeting next month.
The Europe also struggled with investors are focusing on an energy crisis in the bloc. Russian state energy giant Gazprom is expected to halt natural gas supplies to Europe via its main pipeline from Aug 31 to Sept 2 for maintenance.