The yen dropped to a new 24-year low against the dollar as caution swept through markets ahead of the release of US inflation data, and European stocks opened the week lower.
Early trading saw a 1.5% decline in the regional Stoxx Europe 600 index, which followed sharp stock market declines in China brought on by the new Covid-19 restrictions and heightened concerns over potential future disruptions to supply chains around the world. Germany’s Dax index decreased by 1.4%.
The S&P 500 share index of Wall Street, which increased last week after posting its worst first half of the year in more than fifty years, was predicted by futures markets to decline 0.9% in opening New York trading.
Forecasts of US consumer price inflation accelerating to an annual rate of 8.7% in June fueled expectations the Federal Reserve will keep raising interest rates aggressively, and the dollar gained 0.6% against the yen to 137.
After the monthly non-farm payrolls report showed US employers added 372,000 workers last month, versus average forecasts of 265,000, the market’s expectations for how high the Fed will accept borrowing costs increased on Friday.
The Fed will be required to raise interest rates at an aggressive pace, according to Katerina Kosmopoulou, partner at investment manager J Stern & Co. “It is pretty clear after the robust jobs data,” she added.
To reach its target range of 1.50 to 1.75 percent, the Fed increased its funds rate by 0.75 percentage points in June, the biggest rate increase since 1994. The Fed also signaled that it would aggressively raise rates once more at its meeting in July.
Tokyo’s Topix index increased by 1.4% on Monday after Bank of Japan governor Haruhiko Kuroda expressed “very high uncertainty” for the domestic economy, sending a clear message that the central bank will continue to defy the trend toward higher interest rates around the world.
The dollar has risen close to parity with the euro and has surged against the yen, reflecting bets that the European Central Bank will refrain from acting overly hawkishly in response to record-high inflation as the risk of a eurozone recession rises due to Russia’s invasion of Ukraine. On Monday, the euro fell 0.6% to $101.25.
On Monday morning, futures linked to TTF, the benchmark for European natural gas prices, dropped 6% to €160 per megawatt hour. As worries about Russian supply cuts to the continent’s gas market grew since early June, its price more than doubled.
Following the reinstatement of coronavirus restrictions across China’s cities to combat the spread of the highly contagious BA. 5 Omicron coronavirus subvariant, the Hang Seng share index in Hong Kong fell by 3.1%, and the CSI 300 on the mainland fell by 1.8%.
As Chinese researchers race to create a domestic messenger RNA vaccine, the Beijing government has refused to approve foreign coronavirus vaccines.
Brent crude oil dropped 1.4% to $105.58 per barrel on other markets.
The benchmark 10-year US Treasury bond yield, which determines how much debt is priced globally, increased from about 2.8 percent at the beginning of last week to 3.08 percent today.
