Indian equity benchmarks crashed on Monday, extending losses from the fag end of Friday and snapped a near five-week bull run as the safe-haven dollar-dominated global trades, as most central banks are poised to keep raising rates.
A modest easing by China only highlighted troubles in its property market, and hawkish signals from major central bank policymakers, even at the risk of an economic collapse, are hurting investor sentiment.
The 30-share BSE Sensex index fell over 800 points, and the broader NSE Nifty index ended more than 1,5 per cent lower.
Global shares slipped on Monday, and the dollar extended its climb as concerns about the US interest rate outlook reduced risk appetite, with the odds of a 75 basis points rate hike by the Federal Reserve climbing to almost 50 per cent.
Investors eye Federal Reserve Chair Jerome Powell’s speech which headlines a host of policymakers at Jackson Hole later in the week, and the risks are that he will not meet investor hopes for a dovish pivot on policy.
Major European markets were down, and the STOXX index of the 600 largest stocks fell by 0.97 per cent as investors feared hawkish signals from policymakers at the European Central Bank (ECB).
According to Bundesbank President Joachim Nagel, rates at the ECB must continue to rise even though a recession in Germany is becoming more probable because inflation will continue to be uncomfortably high through 2023.
Concern that a three-day suspension of European gas supply later this month may exacerbate an energy crisis caused the euro to briefly fall back below parity against a strong dollar on Monday and to wallow at five-week lows.
However, China stands out as an exception to the tightening trend, as the Chinese central bank cut key lending rates on Monday by 5 to 15 basis points to stabilise a faltering economy and a pressured property market.
The yuan fell to a 23-month low as concern over China’s economy weighed on stocks in the region.
MSCI’s largest index of Asia-Pacific shares outside of Japan decreased by 0.9 per cent, despite gains of 0.7 per cent by Chinese blue chips.
Japan’s Nikkei declined 0.5 per cent, and South Korea’s KOSPI lost 1.2 per cent, despite being helped by the recent dramatic yen reversal.
With S&P 500 futures down 1 per cent and Nasdaq futures down 1.35 per cent, it appeared that US markets would continue their downward trend.
The S&P 500 ended the previous week down 1.2 per cent and has consistently failed to break through its 200-day moving average near 4,320.
The US dollar has strengthened as the most liquid of safe havens, rising to 108.44 against a basket of currencies due to the prevailing atmosphere of global concern. It experienced its greatest performance since April 2020 last week, rising 2.3 per cent.
“The USD can track above 110.00 this week if the August flash PMIs for the major economies show a further slowing in economic growth or contraction in activity,” Joseph Capurso, head of international economics at CBA, told Reuters referring to surveys of manufacturing due on Tuesday.
“We also expect Powell to deliver a hawkish message about inflation, in line with recent comments from other Fed officials supporting the USD,” he added.
Oil prices were also under pressure, amid worries about global demand and the high dollar, as well as consultations between the United States and the European Union on Iran’s response to the latest nuclear pact proposal.
Brent was down $1.64 at $95.1, while US crude lost $1.77 to $89.45 per barrel.