Surging $US playing havoc with financial markets and global trade
US equities sank as the US dollar hit a record high against the British pound, adding volatility to markets already concerned with inflation, rising interest rates, and a possible recession.
The S&P 500 notched a new closing low for 2022 and the Dow Jones Industrial Average slipped into a bear market as interest rates surged and turmoil rocked global currencies. The Dow dropped 1.11 per cent, accelerating losses in the final moments of trading. The 30-stock index is down about 20.4 per cent from its Jan. 4 closing high. The S&P 500 declined a little more than 1 per cent falling below the June closing low, The Nasdaq Composite fell 0.6 per cent. The VIX, or the so called “fear index” was up 8 per cent, reaching its highest point since the major indices sank in June.
It appears the turmoil is continuing in the currency markets with the Federal Reserve’s aggressive hiking campaign, coupled with the UK’s tax cuts announced last week that has caused the US dollar to surge. As a result the euro hit its lowest versus the dollar since 2002. While the British pound dropped to a record low on Monday against the US dollar, falling 4 per cent at one point
The ramifications are that the surging greenback can hurt the profits of US multinationals and also wreak havoc on global trade, with roughly 40 percent of the world’s transactions done in US dollars.
Of course commodities & energy are traded in US dollars – the risk now is that the US is exporting inflation, extinguishing some of its own via the stronger buying power of the US dollar, but adding inflation across the globe. No where is this more visible than in the currency market
The most vulnerable nations face the biggest blowback. Poor countries often have no choice but to repay loans in dollars, no matter what the exchange rate was when they first borrowed the money. Spiralling US interest rates were what set off the catastrophic debt crisis in Latin America in the 1980s.
As Morgan Stanley’s chief US Equity Strategist wrote in a note this morning “ US dollar strength has historically led to some kind of financial and or economic crisis.”
Across the sectors, growth held up better than value today. But Analysts are now cutting their S&P 500 earnings estimates for the third and fourth quarters of 2022.
With Credit rating firm Moody's changing its outlook for the global metals and mining industry from stable to negative as a global economic slowdown continues to soften demand. With copper and aluminium expected to be the worst hit commodities.
Currenices
One Australian dollar has weakened again compared to the US dollar yesterday, buying 64.54 US cents (Mon: 65.21 US cents), 60.41 Pence Sterling, 93.48 Yen and 67.17 Euro cents.
Commodities
Iron ore futures are pointing to a 1.1 per cent gain.
The stronger $US is playing havoc on the commodity front outside of iron ore as gold lost 1.3 per cent.
Silver was down $0.43 or 2.3 per cent to US$18.48 an ounce.
Copper lost $4.85 or 1.5 per cent to US$329.45 a pound.
Oil lost $2.03 or 2.6 per cent to US$76.71 a barrel.
Futures
The SPI futures are pointing to a 0.3 per cent gain on the ASX today
Figures around the globe
Across the Atlantic, European markets closed mixed. Paris lost 0.2 per cent, Frankfurt fell 0.5 per cent while London’s FTSE closed 0.03 per cent higher.
In Asian markets, Tokyo’s Nikkei dropped 2.7 per cent, Hong Kong’s Hang Seng fell 0.4 per cent and China’s Shanghai Composite closed 1.2 per cent lower.
Yesterday, the Australian sharemarket lost 1.6 per cent to close at 6469.
Ex-dividends
Eildon Capital Group (ASX:EDC) is paying 1.4 cents unfranked
Perpetual Equity Investment Company (ASX:PIC) is paying 3.3 cents fully franked
Southern Cross Electrical Engineer (ASX:SXE) is paying 4 cents fully franked
Dividends payable
AGL Energy (ASX:AGL)
Altium (ASX:ALU)
Contact Energy (ASX:CEN)
Dusk Group (ASX:DSK)
Diverger (ASX:DVR)
Engenco (ASX:EGN)
Mader Group (ASX:MAD)
NZME (ASX:NZM)
Woolworths Group (ASX:WOW)
IPO
There is one company set to make its debut on the ASX today. Keep an eye out for Critical Minerals Group (ASX:CMG) after raising $5 milion at 20 cents per share.
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap, CNBC
Copyright 2022 – Finance News Network
Source: Finance News Network
