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After a brief pause, the market rout continues;  Do not dodge recession fears

The S&P 500 fell nearly 6% last week to trade 24% below its January high.


Asian stocks could not sustain a rare rally on Monday as Wall Street futures lost early gains as the US Federal Reserve feared this week to underline its commitment to fighting inflation with all the hikes required rates.

The euro also weakened slightly after French President Emmanuel Macron lost control of the National Assembly in Sunday’s legislative elections, a major setback that could plunge the country into political paralysis.

Trade was dampened by a U.S. holiday and Nasdaq futures quickly held steady, having risen more than 1% at one point, while S&P 500 futures fell. decreased by 0.2%. EUROSTOXX 50 futures fell 0.6% and FTSE futures fell 0.3%.

The S&P 500 fell nearly 6% last week to trade 24% below its January high. BofA analysts noted that this was the 20th bear market in the past 140 years and that the average decline from peak to trough was 37.3%.

Investors are hoping it won’t match the average duration of 289 days, given that it won’t end until October 2022.

MSCI’s broadest index of Asia-Pacific stocks outside Japan lost 0.8% and Tokyo’s Nikkei 1.4%.

Chinese blue chips held steady, perhaps helped by news that President Joe Biden was considering removing some tariffs on China.

Markets fear major central banks will be forced to tighten so aggressively to contain runaway inflation that they will tip the world into recession.

“Market volatility remained elevated, with the VIX index posting the highest weekly close since late April, a theme that goes beyond equities with a spike in currency and rate volatility alongside wider credit spreads. wide,” said Rodrigo Catril, strategist at NAB.

“At this point, it’s hard to see a turn in fortunes until we see evidence of a material easing in inflationary pressures.”

Relief looks unlikely this week, with UK inflation figures expected to show another alarming reading that could push the Bank of England to rise at a faster pace.

The Fed goes unconditional

A whole line of central bankers is also on the agenda this week, led by likely hawkish testimony from Federal Reserve Chairman Jerome Powell in the House on Wednesday and Thursday.

Last week, the Fed pledged its commitment to containing inflation was “unconditional”, while Fed Governor Christopher Waller said on Saturday he would support another 75 basis point hike in July.

“With growth momentum rapidly slowing and a Fed determined to restore price stability, we believe a mild recession from the fourth quarter is now more likely than not,” Nomura analysts warned.

“Financial conditions are expected to tighten further, consumers are experiencing a significant negative sentiment shock, energy and food supply disruptions have worsened, and overseas growth prospects have deteriorated.”

The hawkish outlook keeps the Dollar at 104.660 and near last week’s two-decade high at 105.790.

The euro was a fraction lower after the French election at $1.0490, still uncomfortably close to last week’s low at $1.0357.

The yen remained under heavy pressure as the Bank of Japan stubbornly stuck to its ultra-easy policies even as all of its peers in the developed world took steps to tighten. The dollar was steady at 135.00 yen, having hit its highest level since 1998 last week.

Bitcoin slid 3% to $19,897, after rebounding strongly over the weekend amid talk of just one big buyer.

Dollar strength has kept gold in a tight sideways pattern for the past month or so and it was last stuck at $1,836 an ounce.

Oil prices fell slightly again after a sharp decline late last week amid fears of high energy prices heightened risks of a global recession that would eventually dampen demand.

Brent fell 70 cents to $112.42, while U.S. crude lost 66 cents to $108.90 a barrel.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)


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