The Bank of England is expected to raise interest rates for the fourteenth time as it confronts the highest G7 inflation.
Asian markets fluctuated on Thursday, following Wall Street’s decline, as a US employment report that exceeded expectations rekindled concerns about the Federal Reserve’s interest rate-hiking campaign.
As the repercussions from Fitch’s downgrade of the US debt rating subsided, profit-taking and rising Treasury yields kept the pressure on investors heading into what is traditionally a less attractive time of year for stocks.
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The rating agency’s decision to downgrade Washington’s AAA status shook markets, causing investors to flee riskier assets, but analysts said the move was unlikely to have a lasting effect.
Despite a strong run-up in recent weeks, traders struggled to regain their footing as they reassessed what some consider to be excessive valuations and the prognosis for the US economy.
Companies created 324,000 new positions last month, exceeding expectations of 190,000 by a wide margin, indicating that the labor market remained tight.
This jolted optimism that the Fed might have announced its last rate increase in July, as a series of recent reports indicated that inflation continued to decline and portions of the economy appeared to decelerate.
The news caused 10-year US Treasury yields to reach their highest level since November, which was also attributed to the Treasury selling more bonds than anticipated during an auction.
The so-called “fear gauge” VIX reached levels not observed since May.
The three major indexes on Wall Street all declined, with the Nasdaq losing more than two percent as tech companies are more susceptible to rising interest rates.
In addition, the selling spread to Asia, although some markets fluctuated throughout the morning.
Tokyo lost over one percent, while Shanghai, Sydney, Seoul, and Wellington also declined. However, Hong Kong, Singapore, Manila, and Jakarta saw growth.
Stephen Innes of SPI Asset Management predicted that the upcoming weeks would be tumultuous on trading floors as investors considered their options in light of recent gains.
“As we approach the typically calmer summer season for markets, investors are debating whether to anticipate a renewed surge in risky investments in the coming weeks or to be prepared for a potentially significant decline if the data disappoints,” he wrote.
“And this is due to the high level of optimism already reflected in current prices.”
“Although some technical indicators skew toward caution, such as sentiment measurements appearing stretched, the macroeconomic outlook is still favorable for risk-taking in general. In addition, it is widely anticipated that (consumer price) inflation will decrease when next week’s data are released, supporting the positive macro outlook.”
Focus is now on Friday’s publication of US payrolls data, which will be closely monitored for clues about the Fed’s next moves. Observers warn that a strong print could increase wagers on another rate hike.
Amid a cost-of-living crisis, the Bank of England is expected to announce a 14th rate hike later on Thursday as Britain struggles to reduce its G7-leading inflation rate.
Statistical data around 02:30 GMT
- Tokyo – Nikkei 225: DOWN 1.4 percent at 32,244.08 (break)
- Hong Kong – Hang Seng Index: UP 0.1 percent at 19,533.17
- Shanghai – Composite: DOWN 0.1 percent at 3,258.15
- Euro/dollar: UP at $1.0942 from $1.0940 on Wednesday
- Pound/dollar: UP at $1.2717 from $1.2711
- Euro/pound: UP at 86.06 from 86.04 pence
- Dollar/yen: DOWN at 143.33 yen from 143.37 yen
- West Texas Intermediate: UP 0.3 percent at $79.71 per barrel
- Brent North Sea crude: UP 0.3 percent at $83.44 per barrel
- New York – Dow: DOWN 1.0 percent at 35,282.52 (close)
- London – FTSE 100: DOWN 1.4 percent at 7,561.63 (closed)
