HONG KONG (AFP) – Stock markets mostly fell yesterday on renewed concerns that the Federal Reserve will hike rates again, while another weak batch of trade data compounded worries about the struggling Chinese economy.
The positive sentiment that fuelled a rally through much of July has given way to nervousness that while United States (US) inflation is coming down, officials will keep tightening monetary policy to make sure they have prices under control.
Those concerns were magnified on Monday when Fed Governor Michelle Bowman repeated her weekend comments that she wanted to see “evidence that inflation is on a consistent and meaningful downward path” and rates should be lifted again.
Talk of another increase has jolted the feel-good mood that came after the Fed’s latest policy meeting, when it said it would be more data-dependent in making decisions – which many took as a hint it had finished raising rates.
Still, New York Fed chief John Williams told the New York Times he thought “monetary policy is in a good place – we’ve got the policy where we need to be”.
In an interview published on Monday, he added it was “an open question” on whether rates needed to go even higher.
But he said if inflation continued to soften then interest rates could start coming down next year or in 2025.
Analysts also warned that while the US economy remained in rude health after more than a year of tightening, there were still recession fears.
“There is no way the Fed can do the level of tightening that it’s done so aggressively and not have some damage,” Kristina Hooper of Invesco told Bloomberg Television.
“That’s why I believe it’s going to be a bumpy landing.”
Wall Street’s three main indexes enjoyed a strong start to the week, with focus turning to the release of consumer price inflation due later in the week. A mixed jobs report on Friday left investors with little to gauge the Fed’s next move.
Adding to the negativity, data showed Chinese July exports plunged the most since early 2020, while imports sank for a ninth straight month.
Hong Kong and Shanghai dropped along with Seoul, Wellington, Manila, Jakarta, Mumbai and Bangkok. Sydney was barely moved but there were gains in Tokyo and Singapore.
London, Paris and Frankfurt joined the sell-off.
The prospect of the Fed lifting rates again boosted the dollar against its peers.
National Australia Bank’s Tapas Strickland warned of another possible hurdle for stocks next month as the US government faces another federal shutdown if lawmakers do not agree a funding deal.
While the crisis – similar to that seen in 2018-19 – does not threaten a default, it could see the closure of key services, which Strickland said could play a role in the Fed’s decision-making.
He pointed out that reports suggested Republicans were “emboldened by the ratings downgrade by Fitch Ratings, to cut spending and bring the deficit under control”.
“For the market, this issue could gather steam just as we head towards the next (Fed) policy meeting in late September, and it could be a factor in the Fed’s decision on rates.”
