Global shares dip despite Wall Street rally; eyes on Fed chair

TOKYO –

Wednesday’s global shares fell as markets reacted to Wall Street rallies and awaited testimony from Jerome Powell, Federal Reserve Chair.

European benchmarks fell in the early trading session after shares in Asia, including South Korea, Japan, South Korea, and China, finished lower. U.S. futures also fell.

France’s CAC40 lost 1.9% to 5,853.92, while Germany’s DAX fell 2.3% to 12,989.70. The FTSE 100 in Britain fell 1.2% to 7,066.66. U.S. shares were expected to slide lower with Dow futures at 30 037.00, down 1.6%. S&P 500 futures fell 1.9% to 3,698.00.

Japan’s benchmark Nikkei 225 shed 0.4% to finish at 26,149.55. Australia’s S&P/ASX 200 lost 0.2% to 6,508.50. South Korea’s Kospi tumbled 2.7% to 2,342.81. Hong Kong’s Hang Seng dropped 2.6% to 21,008.34, while the Shanghai Composite sank 1.2% to 3,267.20.

Stocks have been sliding in recent weeks due to investors adjusting to higher interest rates that are being offered by the Federal Reserve and other central bank to manage record-high inflation. Investors worry that the Fed might slow down economic growth too much, triggering a recession.

The overnight rally on Wall Street “will be taken with a pinch of salt as elevated inflation and risks to growth persist,” Venkateswaran Lavanya at Mizuho Bank said.

What Powell will tell Congress on Wednesday is the first of two days of testimony as part of the central bank’s semi-annual monetary policy report.

“For now, the fundamental catalyst for a more sustained rebound seems fragile, with all eyes on Fed Chair Jerome Powell’s testimony ahead to further drive expectations of policy outlook and inflation,” Yeap Jun Rong, market strategist at IG in Singapore, saidIn a commentary

Inflation and interest rates are now being exacerbated by the increase in energy prices after Russia’s invasion Ukraine. The U.S. crude oil price has risen by 52% over the past year. This has caused a decrease in spending and a larger share of the people’s pockets at the pump.

On Wednesday, oil prices dropped again. The benchmark U.S. crude fell by US$5.01 to $104.51 a barrel. Brent crude, an international standard, fell $4.78 to $109.87 per barrel.

“The narrative in financial markets seems pretty clear. Inflation must be addressed. Given that supply-side factors don’t show any signs of easing, central bank will have to pull the steam out demand by tightening their monetary policy. Whether that slowdown turns into a soft-landing or a recession remains to be seen,” saidChris Turner, global head market at ING.

Market volatility has been caused by a long list of worries. Daily swings between losses and gains have been common. Major indexes have also experienced sharp shifts between gains/losses on an hourly basis.

The Fed raised its key short-term rate by three times the usual amount last week. It just began allowing some of its trillions of dollar bonds that it bought during the pandemic to be removed from its balance sheet. This should increase pressure on long-term interest rates. It is also another way central banks are pulling back support that was previously placed beneath markets to boost the economy.

The Fed’s moves are happening as some discouraging signals have emerged about the economy, including sagging spending at retailers and soured consumer sentiment. Powell has already indicated that the Fed may consider another mega-hike at its July meeting. saidIncreases of three-quarters of one percentage point are not common.

Currency trading saw the U.S. Dollar drop to 136.22 Japanese Yoen, from 136.64. The euro cost $1.0514, a drop of $1.0537.