Asian stock prices fell this morning, while the euro’s exchange rate against the dollar plunged to its lowest level in 20 years as the Eurozone faces the threat of recession, given that the European Central Bank will soon raise interest rates due to high inflation.
The MSCI Asia-Pacific index, excluding Japan, was down 0.8 percent around 7:00 AM. Meanwhile, the Nikkei index on the Tokyo Stock Exchange fell 1.1 percent, while stock prices in Australia, South Korea, Shanghai, and Hong Kong slid between 0.3 and 1.3 percent.
Is the Eurozone Facing a Recession?
Asian markets are following yesterday’s decline in European stock markets of nearly 2 percent, after new data showed that the growth of the Eurozone economy is significantly slowing.
On the other hand, due to Western sanctions on Russia, the main gas supplier to Europe, prices for this energy source are rising sharply. This, in turn, fuels inflation, which is at record levels in the Eurozone, above 8.5 percent, which could prompt the European Central Bank (ECB) to raise interest rates more aggressively than previously announced.
As a result, the Eurozone is threatened by recession, and the euro’s exchange rate against the dollar fell last night to its lowest level in 20 years.
– The drums warning of recession risks are getting louder. Currently, the best strategy is defense, as various things can come out of the closet during a recession – says Jason Teh, director at Vertium Asset Management.
The situation is no better in Britain. Especially since the government there is in serious trouble following the resignations of the finance and health ministers.
– Britain is at risk of having the slowest growth among all developed economies in the world next year, with high inflation and the largest current account deficit – write analysts from Societe Generale bank in their review of the market situation.
Instability on Wall Street
Asian investors were also unsettled by yesterday’s instability on Wall Street. Although the S&P 500 index ended slightly up, it was down more than 2 percent in the first part of trading, and the subsequent recovery does not inspire confidence.
This is a consequence of investors’ fears of recession as the U.S. central bank aggressively raises interest rates due to high inflation.
In the first quarter, the U.S. economy contracted on a quarterly basis, and macroeconomic data in the second quarter is not promising either.
In July, further interest rate hikes are expected. On Wednesday, investors will focus on the release of the minutes from the last Fed meeting, where the central bank raised key rates by 0.75 percentage points.
The market expects that the Fed will also raise rates by 0.75 percentage points in July, given that inflation in the U.S. is at its highest levels in over 40 years. If there is a sign of easing inflation, it could be reflected in Friday’s employment and wage report for June in the U.S.
Dollar Strongest in 20 Years, Oil Prices Rise
In such circumstances, the value of the dollar against a basket of currencies has reached a new highest level in 20 years.
The dollar index, which shows the value of the U.S. dollar against the other six major world currencies, is around 106.46 points, while it was 105.19 points at the same time yesterday.
At the same time, the dollar’s exchange rate against the Japanese currency slipped from yesterday’s 136.20 to 135.20 yen. However, the U.S. currency has significantly strengthened against the European one, with the euro price falling to 1.0260 dollars, close to its lowest level since late 2002, while it was 1.0435 dollars at the same time yesterday.
The pressure on the euro is a result of high inflation and slowing economic growth in the Eurozone, which, analysts say, leads to recession.
– In the last 16 days, gas prices in Europe have risen by 100 percent, so the European Central Bank is facing significant challenges. Due to high inflation, it should significantly raise interest rates, but on the other hand, economic growth is slowing. I think it is no longer a question of whether there will be a recession, but how deep it will be and how long it will last – says Chris Weston, director of research at brokerage firm Pepperstone.
Oil prices, on the other hand, have risen somewhat after plunging more than 8 percent yesterday as investors fear that a recession would lead to a drop in demand for ‘black gold.’ The price of a barrel in the London market strengthened by 1.14 percent this morning to 103.95 dollars, while in the U.S. market, a barrel increased by 0.82 percent to 100.32 dollars.
