Global markets are tanking ahead of a big week for central banks

LONDON – Global stock markets fall after a rally US inflation print of May fears that central banks will be forced to tighten aggressive monetary policy.

Friday’s much-anticipated Consumer Price Index report came in warmer than expected at 8.6% year over year, rekindling market concerns. federal Reserve And other central banks can afford to drive the economy into recession.

Major averages in the US closed their biggest weekly decline since January on Friday, and Futures point to further losses on Wall Street When the opening bell rings on Monday.

Shares in Asia-Pacific fell on Monday, with Hong Kong Hang Seng Indexof japan Nikkei 225 and South Korea kospi All are falling over 3%.

European stocks also fell in early trade stockx 600 2% shed as a sea of ​​red through global risk assets.

meanwhile, US 2 Year Treasury rate hit highest level since 2007 Monday morning and the benchmark edged closer to an inversion with the 10-year rate – seen by many as a sign of an imminent bearish downturn.

‘Punch in the gut’

At the heart of the unfavorable market reaction to Friday’s CPI readings is fears that inflation expectations have widened and deepened beyond well-documented transient drivers such as supply chain disruptions and energy shocks.

“I think the likelihood of a bear market fall and indeed a downturn as a result of Friday’s punch in a way has increased,” Fahd Kamal, chief investment officer at Kleinwort Hambros, told CNBC on Monday.

Kamal said there was “very, very little good” in Friday’s inflation report, which he said has not peaked and has instead broadened across the economy.

“It is less talked about in the sex and violence of oil and commodity prices and other things, but in reality, fares are very sticky and it is a big part of the index. There is also upward momentum, which means inflation. Going to be with us even longer than we expected last week,” he said.

Richard Kelly, head of global strategy at TD Securities, told CNBC on Monday that both the bond and stock markets were now indicating a recession was underway, perhaps in the fourth quarter of 2022 and the first quarter of 2023.

“Overall, if you look at the equity markets, they are telling you that the ISM (US Economic Activity Index) will probably fall to 50 or sub-50 over the next two to three months, partly due to the Fed and central That’s what the bank has to do to get inflation back under control,” Kelly said.

The 50 point separates expansion from contraction in a purchasing managers’ index reading, which is a reliable gauge of economic activity.

“While (the Fed) can’t sit there and say that their job is to end job creation right now, that’s basically what they need to do if they’re going to get inflation under control now,” Kelly said.

bank of englandThe Monetary Policy Committee will announce its latest interest rate decision on Thursday, while bank of japan, Swiss National Bank And Brazil’s BCB also meets this week.

Investors will also be digesting a range of economic activity data, including Chinese industrial production and retail sales, UK industrial production, employment and retail sales, and US producer price inflation, retail sales and industrial output.

UK GDP shrank 0.3% month-on-month in April, Official data showed Monday, ahead of Thursday’s decision by the Bank of England slackened economists’ expectations for a 0.1% expansion and fears of an economic slowdown.

“In broader terms, the data will race for bearish signals, with the added irony that any indication of activity strength is likely to be a case of ‘good news’ being bad (i.e. more on rate expectations). pressure), said Mark Ostwald, chief economist and global strategist at ADM Investor Services International, while central banks are under pressure to retain some degree of control over rate trajectory narratives, despite proven disappointingly wrong on inflation.