US stocks fell as the US dollar hit a record high against the pound, adding volatility to markets already worried about inflation, rising interest rates and a possible recession.
The S&P 500 hit a new 2022 closing low and the Dow Jones Industrial Average slipped into a bear market as interest rates jumped and turmoil rocked global currencies. The Dow fell 1.11%, accelerating losses in the final moments of trading. The 30-stock index is down about 20.4% from its January 4 closing high. The S&P 500 fell just over 1%, falling below the June closing low, the Nasdaq Composite fell 0.6%. The VIX, or the so-called “fear index,” rose 8%, hitting its highest level since major indexes fell in June.
It looks like the turmoil continues in the currency markets with the Federal Reserve’s aggressive bullish campaign, coupled with the UK tax cuts announced last week, pushing the US dollar higher. As a result, the euro hit its lowest level against the dollar since 2002. While the pound fell to a record low on Monday against the US dollar, falling 4% at one point
The ramifications are that the rising greenback can hurt US multinational profits and also wreak havoc on global trade, with around 40% of global transactions conducted in US dollars.
Of course, commodities and energy are traded in US dollars – the risk now is that the US will export inflation, extinguishing some of its own via the stronger purchasing power of the US dollar, but adding inflation around the world. Nowhere is this more visible than in the currency market
The most vulnerable nations face the greatest backlash. Poor countries often have no choice but to repay their loans in dollars, regardless of the exchange rate when they first borrowed the money. Soaring interest rates in the United States were at the root of the catastrophic debt crisis in Latin America in the 1980s.
As Morgan Stanley’s chief US equity strategist wrote in a note this morning, “the strength of the US dollar has historically led to some sort of financial and/or economic crisis.”
In all sectors, growth held up better than value today. But analysts are now slashing their S&P 500 earnings estimates for the third and fourth quarters of 2022.
Ratings firm Moody’s is changing its outlook for the global metals and mining industry from stable to negative as a global economic slowdown continues to dampen demand. Copper and aluminum are expected to be the most affected raw materials.
An Australian dollar weakened again against the US dollar yesterday, buying 64.54 US cents (Mon: 65.21 US cents), 60.41 pence sterling, 93.48 yen and 67.17 euro cents .
Iron ore futures are pointing to a 1.1% gain.
The stronger US dollar is wreaking havoc on the commodities front outside of iron ore, with gold losing 1.3%.
Silver was down $0.43 or 2.3% at US$18.48 an ounce.
Copper fell $4.85 or 1.5% to US$329.45 per pound.
Oil fell $2.03 or 2.6% to US$76.71 a barrel.
SPI futures point to a 0.3% gain on the ASX today
Numbers around the world
On the other side of the Atlantic, the European markets closed on a mixed note. Paris lost 0.2%, Frankfurt fell 0.5% while London’s FTSE closed up 0.03%.
In Asian markets, Tokyo’s Nikkei fell 2.7%, Hong Kong’s Hang Seng fell 0.4% and China’s Shanghai Composite closed down 1.2%.
Yesterday, the Australian stock market fell 1.6% to close at 6469.
Eildon Capital Group (ASX:EDC) pays 1.4 cents unstamped
Perpetual capital investment company (ASX:PIC) pays 3.3 cents fully franked
Southern Cross Electrical Engineer (ASX:SXE) pays 4 cents fully franked
Initial Public Offering
There’s a company set to debut on the ASX today. Keep an eye on Critical Minerals Group (ASX: CMG) after raising $5 million at 20 cents per share.
Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Exchange Data, Trade Economics, CoinMarketCap, CNBC