Wall Street, Asian and European Markets Decline Due to Fear of Further Fed Interest Rate Hikes

On Wall Street, stock indices fell for the second consecutive day on Tuesday as investors fear further aggressive interest rate hikes from the Fed, while the growth of the U.S. economy slows down. Dow Jones fell by 0.47 percent to 32,909 points, while S&P 500 slid by 0.22 percent to 4,128 points. Nasdaq index remained unchanged at 12,381 points.

After a sharp decline on Monday, indices weakened again on the second day of this week, but significantly less than the day before. Investors are cautious as further interest rate hikes from the U.S. central bank are expected. To curb the highest inflation in over 40 years, the Fed has raised rates by 2.25 percentage points since March, and there is no doubt that they will increase them further in September.

The question is, however, whether the rates will be increased by 0.50 or 0.75 percentage points. Therefore, the speech of Fed Chairman Jerome Powell on Friday at the central bankers’ conference in Jackson Hole is eagerly awaited.

Recent data showed that inflation in July slightly decreased from the highest levels in 40 years, leading to hopes that the Fed might be less aggressive in raising rates in the future. However, a number of Fed officials have warned that much more needs to be done to curb inflation.

– In the comments from Fed officials, it is evident that it is possible that the central bank will raise rates by 0.75 percentage points in September. The market fears that Powell will again take a tough stance – says Jake Dollarhide, director at Longbow Asset Management.

The tightening of monetary policy will further slow down economic growth, which is already technically in recession, given that it has slightly declined for two consecutive quarters on a quarterly basis.

Further weakening of the largest economy in the world was indicated by data released yesterday showing a decline in business activity in August, the second month in a row, particularly in the service sector as demand weakened due to high inflation and tightening financial conditions.

After a sharp decline in the first half of the year, the S&P 500 index has risen about 13 percent since mid-June. However, it seems that the summer recovery has ended as stock prices fell last week after a strong rise for four consecutive weeks. Since the beginning of the year, the S&P 500 is down about 13 percent, and the Nasdaq index is down more than 20 percent.

Stock prices also fell on European exchanges yesterday. The London FTSE index weakened by 0.61 percent to 7,488 points, while the Frankfurt DAX slid by 0.27 percent to 13,194 points, and the Paris CAC fell by 0.26 percent to 6,362 points.

Dollar Weakens, Oil Prices Fall

After signs of slowing growth in the largest economy in the world, the value of the dollar against a basket of currencies also fell in the foreign exchange market. The dollar index, which shows the value of the U.S. dollar against the other six major world currencies, is around 108.70 points, while it was 108.90 points at this time yesterday.

At the same time, the dollar exchange rate against the Japanese currency slipped from yesterday’s 137.40 to 136.85 yen.

The U.S. currency also weakened against the European currency, with the price of the euro reaching 0.9960 dollars, while it was 0.9940 dollars at this time yesterday.

The weakness of the euro is a result of investors’ fears that the eurozone economy will plunge into recession due to the energy crisis, while the European Central Bank is expected to raise interest rates again due to high recession.

Oil prices, on the other hand, fell after a strong rise yesterday. The price of a barrel in the London market slipped by 0.54 percent to 99.68 dollars, while in the U.S. market, a barrel decreased by 0.36 percent to 93.40 dollars.

Asian Markets Also Decline

On most Asian exchanges, stock prices fell on Wednesday for the eighth consecutive day as investors fear further aggressive interest rate hikes from the U.S. central bank and as economic growth slows down.

The MSCI index of Asia-Pacific stocks, excluding Japan, was down 0.2 percent around 7:00 AM, weakening for the eighth consecutive day.

Meanwhile, on the Tokyo Stock Exchange, the Nikkei index slipped by 0.4 percent, while stock prices in Shanghai and Hong Kong fell by about 1.3 percent. In South Korea and Australia, however, they rose between 0.2 and 0.5 percent.

Asian investors are cautious as the growth of the largest economies in the world slows down and as further interest rate hikes are expected in Western countries due to high inflation.