ASX 200: Australia braces as fears of a global recession mount

There are now fears that the world is on the verge of a recession after horrific new data from the US sent chills down the spine of the globe.

There are now fears that the world is on the brink of a global recession, after new US inflation data has sent chills down the spine of stock markets around the world.

Australians who own equities are probably happy that today is a bank holiday and the markets are closed after a pretty rough week last week.

But the pain will get even worse for the Australian economy after the The United States recorded the highest rate of inflation since 1981 – stoking fears that the global economy is slowly slipping into a recession.

While there may be a break for Australia’s grief today due to the Queen’s birthday holiday, the market is expected to take a hit in the coming days.

Investors Mutual portfolio manager Daniel Moore said the australian expect “significant declines” when the market reopens this week.

“The US market was down 2.73% on Friday so Australian futures are currently down 1.6% and if you look at the sector breakdown almost all sectors are down on fears higher inflation will lead to higher interest rates, which will cause a recession,” said Moore, who handles $5 billion in funds.

“The economic outlook is quite difficult, with inflation and interest rates on the rise, and investors are generally cautious, preferring companies with more resilient earnings in tougher economic conditions.”

Things already looked sketchy on the Australian Stock Exchange after a week that saw a higher-than-expected cash rate rise.

With little relief in sight, many economists expect the RBA to raise interest rates by 50 basis points at its next meeting in July, after a surprise 50 basis point hike this month.

Why are we facing a recession?

While inflation and interest increases are on the rise here in Australia, things are looking much worse in the US.

His red-hot rise in inflation shows few signs of cooling, putting his Federal Reserve on track to continue its aggressive interest rate hikes to help cool high prices that challenge Joe Biden’s presidency.

The expected signs of relief for American families failed to materialize in May when consumer prices hit a new four-decade high, rising 8.6 percent and surpassing what economists thought was the March peak.

As Russia’s war against Ukraine continues to put pressure on global fuel and food prices, and amid continued supply chain uncertainties due to Covid-19 lockdowns in Asia, analysts now say the expected decline in inflationary pressures will take much longer to materialize.

The US central bank had already signaled plans for larger benchmark lending rate hikes this week and next month, but the chances are rising that the Fed will need to be even more aggressive, adding to the risk of the economy slipping into a recession.

The latest inflation report, the last big data before the Fed’s monetary policy meeting on Tuesday and Wednesday, also dampens hopes that central bankers could declare a ceasefire in September ahead of key legislative elections, where Biden’s Democrats are expected to suffer damaging losses.

Prices continued to rise last month for a variety of goods, including homes, groceries, airfares and new and used vehicles, setting new records in multiple categories, according to Labor Department data.

Energy soared 34.6 percent over the past year, the fastest since September 2005, while food is up 10.1 percent and the cost of fuel more than doubled, jumping 106.7 percent. cent, the largest increase in the history of the CPI, which dates back to 1935.

The rise in the CPI “increases the likelihood of even more aggressive rate hikes from the Federal Reserve to lower inflation expectations,” said Mickey Levy of Berenberg Capital Markets. than the expected increase of half a point: it would be the first rate hike of 75 basis points since November 1994.

Diane Swonk of Grant Thornton indicated that such a move is possible. “They are behind the curve and eager to catch up,” she said on Twitter. “The Fed has to cut demand to deal with a supply-constrained world. Ugly in many ways.”

Barclays economists are now calling for a 0.75-point increase, though Moody’s Ryan Sweet says the chances are low and LBBW’s Karl Haeling expects three more half-point hikes.

– with AFP

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