Global recession risks have risen sharply due to interest rate hikes by major central banks

The US stock indices closed Thursday with sharp declines, with each of the major indices experiencing their biggest daily percentage drop in weeks, as fears intensified that the Federal Reserve's fight against inflation with aggressive interest rate hikes could lead to a recession. As the stock market closed, the Dow Jones Index (US30) decreased by 2.23%, and the S&P 500 Index (US500) was down by 2.49%. Technology Index NASDAQ (US100) lost 3.23% yesterday. All three indices closed the day with losses.

Investors also estimated Thursday economic data that showed a sharper-than-expected decline in retail sales in November. The number of Americans filing for unemployment claims decreased last week, indicating labor market tensions.

Equity markets in Europe were mostly down yesterday. Germany's DAX (DE30) decreased by 3.28%, France's CAC 40 (FR40) lost 3.09%, Spain's IBEX 35 (ES35) fell by 1.70%, and Britain's FTSE 100 (UK100) closed Thursday down by 0.93%.

Yesterday, the Bank of England expectedly raised its interest rate by 0.5%. The Bank's statement indicates that further rate hikes may be needed to meet the Bank's 2% target. Investors expect the Bank of England to raise its key rate to 4.5% by the middle of next year, which implies two more 0.5% hikes. After the meeting, Bank of England Governor Andrew Bailey said he sees "good signs" in U. inflation figures, which have fallen from a 41-year high, but the Central Bank must do more to prevent a wage and price spiral.

The Swiss National Bank (SNB) raised its key rate by 50 bps, as expected, bringing the total monetary tightening to 175 bps. The upward revision to medium-term inflation forecasts signals a further rate hike in March 2023. The SNB has been selling foreign exchange in recent months, which has helped strengthen the Swiss franc and limit imported inflation.

The prospect of higher interest rates in major economies has raised fears of a possible recession, which has reduced attitudes toward risky assets.

Gold prices fell by 1.7% on Thursday, the worst one-day drop in three months. The drop in gold and silver is due to leading central banks raising interest rates this week. This increases the risk of a recession. Moreover, rising rates are pushing up government bonds, to which gold and silver are inversely correlated.

Asian markets were mostly up yesterday. Japan's Nikkei 225 (JP225) decreased by 0.37%, China's FTSE China A50 (CHA50) closed in minus 0.04%, Hong Kong's Hang Seng (HK50) ended the day down by 1.55%, India's NIFTY 50 (IND50) lost 1.32%, and Australia's S&P/ASX 200 (AU200) ended Thursday down by 0.64%.

China faces an unprecedented surge in COVID-19 cases in the near term, which analysts warn could delay resumption and further disrupt economic activity. The International Energy Agency forecasts that China's oil demand will recover next year after reaching 400,000 barrels per day (BPD).

S&P 500 (F) (US500)  3,895.75  −99.57 (−2.49%)

Dow Jones (US30) 33,202.22 −764.13 (−2.25%)

DAX (DE40) 13,986.23 −473.97 (−3.28%)

FTSE 100 (UK100) 7,426.17 −69.76 (−0.93%)

USD Index 104.63 +0.86 (+0.83%)

• – Australia Manufacturing PMI (m/m) at 00:00 (GMT+2);
• – UK Retail Sales (m/m) at 09:00 (GMT+2);
• – French Manufacturing PMI (m/m) at 10:15 (GMT+2);
• – German Manufacturing PMI (m/m) at 10:30 (GMT+2);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
• – Italian Consumer Price Index (m/m) at 12:00 (GMT+2);
• – Eurozone Consumer Price Index (m/m) at 12:00 (GMT+2);
• – US Manufacturing PMI (m/m) at 16:45 (GMT+2).

by JustMarkets, 2022.12.16

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.