On Thursday, global equity markets declined as did oil, while there were gains recorded in the US dollar. This was after the release of the hot inflation data in the US, which sparked worries about the interest rate hikes from the Federal Reserve and a potential economic recession.
The US inflation data was disclosed by the Labor Department on Wednesday and it highlighted that consumer prices had climbed 9.1% since last year in June, which was higher than the 8.6% rise recorded in May.
This data confirmed expectations about the US Federal Reserve continuing to stay aggressive. Plus, Raphael Bostic, the Atlanta Fed President, said that there could even be a hike of 100 basis points in the interest rates.
There was a 1.53% decline in the continent-wide STOXX 600 index in Europe, while a 0.82% fall was recorded in the MSCI gauge of world stocks. Thursday also saw Wall Street indexes tumble, after the earnings from US banks like Morgan Stanley and JPMorgan Chase & Co highlighted increasing fears of a sharp slowdown in the economy.
A 0.46% fall was recorded in the Dow Jones Industrial Average and 0.30% was also lost by the S&P 500. The Nasdaq Composite, on the other hand, gained by 0.03%. Meanwhile, the US dollar also benefitted from the uncertain environment, as it hit a 20-year high. It remained the preferred safe-haven asset, while a 2% fall in gold was recorded, bringing it to a low of one year on Thursday.
There was a 0.351% gain in the US dollar index, while a 0.47% decline was seen in the euro, bringing it to $1.0013. Market analysts said that the US Fed needs to discuss its plans for tempering expectations. They added that in the past, inflation usually rises during the hiking cycle because it takes time for the monetary policy tightening to take effect.
The biggest bank in the United States is JPMorgan Chase and its second quarter profit declined. Jamie Dimon, the chief executive of the bank, warned that falling consumer confidence, high inflation, the Ukraine war, excessive monetary policy tightening, and geopolitical tensions would continue to have negative consequences.
Market analysts asserted that the weakness in investment banking should not have come as a surprise. They said that everyone was fully aware of the market uncertainty, so it should not have had such an impact.
The Labor Department data also exacerbated slowdown worries, as the Producer Price Index was similar to the CPI data on Wednesday. There was also a 0.5% decline in the British pound, which brought it to $1.1832. The first round of voting for the replacement of British Prime Minister Boris Johnson saw Rishi Sunak get the most support from Conservative lawmakers, who had served as the former finance minister.
Meanwhile, the euro continues to be under pressure, as the European Central Bank (ECB) is lagging behind in its monetary tightening policy as opposed to other central banks and the eurozone economy faces a potential energy crisis.