Shares Plummet as Major Central Banks Meet for Rate Decisions

Shares declined in Asia today, Monday, as a series of interest rate decisions due in the next few days are likely to cause borrowing costs around the world to rise. The drop in global stocks comes after their worst week since this year’s lows in June. In stock market news, equities and U.S. stock futures fell in Hong Kong, Australia, and South Korea. Trading may be affected today due to a holiday in Japan and the U.K. observing a bank holiday to mark Queen Elizabeth II’s funeral. Cash Treasuries will not be traded during the Asian and European sessions. The S&P 500 index dropped almost 5% last week and recorded its lowest performance since June 2017. At the same time, the interest rate sensitive 2-year Treasury yield closed at 3.87%. These market moves mirror expectations for a jumbo-sized interest rate hike from the Fed on Wednesday and investors’ concerns that the aggressive monetary policy tightening to curb inflation could trigger a recession. Markets are fully priced for a 75-basis points interest rate hike from the Fed and futures reflect a 20% chance of a 1 percentage point as U.S. consumer prices persistently rise.

U.S. Dollar Remains Strong

The U.S. dollar remained close to a 20 year high against major currencies on Monday with a week full of market holidays and central bank decisions ahead. The U.S. dollar hovered around 143.40 yen on Monday. The Japanese currency remains under pressure as national officials keep pointing to currency intervention. The Bank of Japan (BOJ) is expected to proceed with more stimulus unlike other developed nation central banks that tighten monetary policies to quell inflation. The pound sterling dropped to its lowest level against the U.S. dollar since 1985.

Oil Declines over Dwindling Demand Expectations

Oil dropped by more than 1% on Monday as global oil demand is expected to decline. Last week the International Energy Agency forecast that there will be zero demand growth in the last quarter. At the same time, the commodity was pressured by the strength of the U.S. dollar ahead of further possible big interest rate increases. Worries over supplies restricted the drop in the price of oil.

What to Watch out for this Week:

Monday World Bank President’s speech in New York European Central Bank vice president’s speech in Madrid Tuesday China loan prime rates Sweden interest rate decision Wednesday Federal Reserve interest rate decision Major bank CEOs testify before the U.S. House Financial Services Committee Thursday Japan central bank policy meetings U.K. central bank policy meetings Indonesia central bank policy meetings South Africa central bank policy meetings Turkey central bank policy meetings Switzerland central bank policy meetings US Treasury Secretary’s speech in Washington Friday Eurozone PMIs