Volatility Engulfs Global Markets

With inflation in the US touching a 40-year high and China tackling a fresh phase of lockdowns in major cities, investors are now worried about a potential economic slowdown.

In the course of the past fortnight, a majority of Asian stocks fell to an almost two-year low while the US dollar hit its highest in two decades. Data indicates that US’ inflation is very high and hurting investor sentiments due to aggressive interest rate hikes to control it. Wall Street turned volatile after the news and closed consistently lower in the past week. European futures fell 2 per cent with Euro STOXX 50 futures slipping down by 2 per cent and FTSE futures down 1.6 per cent. The US’ Consumer Price Index (CPI) climbed 8.3 per cent in April, more than the estimate of 8.1 per cent. 

This is the highest level in more than 40 years. The core CPI numbers, which exclude food and energy, also went higher than expected, rising at 6.2 per cent. In this gloomy scenario, the US economy added slightly more jobs than expected in April 2022 in an increasingly tight labour market and despite rising inflation and fears of an economic slowdown. According to the Bureau of Labour Statistics, non-farm payrolls grew by 428,000 for the month, a bit above the Dow Jones’ estimate of 400,000. The unemployment rate was 3.6 per cent, a bit higher than the estimated 3.5 per cent.

"US Senate confirmed Jerome Powell to a second four-year term as head of the Federal Reserve. The former investment banker continues leading the central bank as it confronts the highest inflation in 40 years."

The April data was identical to the downward revised count for Volatility Engulfs Global Markets With inflation in the US touching a 40-year high and China tackling a fresh phase of lockdowns in major cities, investors are now worried about a potential economic slowdown Global Market Watch March. In Asia, China will have to issue more debt as the country looks to keep growth on track in the face of fresh lockdowns on account of resurgence in the corona virus cases.

The situation now threatens to derail its economy. Amid an economic slowdown, China has signalled in recent weeks that it still wants to meet the growth target of 5.5 per cent in 2022. Inflation data released last week showed that China’s Producer Price Index (PPI) for April rose 8 per cent year-on-year, higher than expectations of a 7.7 per cent increase.

Consumer inflation was also higher than expected. It jumped 2.1 per cent year-on-year, above expectations of a 1.8 per cent gain. On the MSCI broad index of Asia-Pacific shares outside Japan, there was a decline of 2.3 percent, which is a 22-month low, while in the last week Japan’s Nikkei tumbled around 2 per cent. In the currency market, the rate outlook is driving up the US dollar, denting the riskier assets that shot up through two years of stimulus and lower interest rate lending. 

In May so far, Nasdaq has plummeted nearly 8 per cent and tanked by more than 25 per cent in 2022. Hong Kong’s Hang Seng Tech index has fallen more than 30 per cent this year.