European stocks started the week lower while the yen dipped to a fresh 24-year low against the dollar as caution swept across markets ahead of a release of US inflation data.
The regional Stoxx Europe 600 index fell 1.5 per cent in early trading, following sharp stock market drops in China driven by new Covid-19 restrictions in that heightened fears of further disruption to global supply chains. Germany’s Dax fell 1.4 per cent.
Futures markets indicated Wall Street’s S&P 500 share index, which rose last week following its worst first half of the year for more than five decades, would fall 0.9 per cent in initial New York dealing.
The dollar strengthened 0.6 per cent against the yen to ¥137 as forecasts of US consumer price inflation accelerating to an annual rate of 8.7 per cent in June fuelled expectations the Federal Reserve will keep raising interest rates aggressively.
Market predictions of how high the Fed will take borrowing costs rose on Friday after the monthly non-farm payrolls report showed US employers added 372,000 workers last month, compared with average forecasts of 265,000.
“It is pretty clear, after the robust jobs data, that the Fed will have the mandate to increase interest rates at an aggressive pace,” said Katerina Kosmopoulou, partner at investment manager J Stern & Co.
The Fed raised its funds rate by 0.75 percentage points in June, its biggest rate rise since 1994, to a target range of 1.50 to 1.75 per cent, and indicated it would raise rates aggressively again at its July meeting.
Tokyo’s Topix rose 1.4 per cent on Monday after Bank of Japan governor Haruhiko Kuroda warned of “very high uncertainty” for the domestic economy in a strong signal the central bank will keep defying the global trend towards higher interest rates.
As well as surging against the yen, the dollar has also risen close to parity with the euro, reflecting bets that the European Central Bank will resist an overly hawkish response to record-high inflation as Russia’s invasion of Ukraine increases recession risks in the eurozone. The euro dropped 0.6 per cent to $101.25 on Monday.
Futures linked to TTF, the European natural gas price benchmark, fell 6 per cent to €160 per megawatt hour on Monday morning. Its price has doubled since early June as fears intensified about Russian cuts to the continent’s gas supplies.
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Hong Kong’s Hang Seng share index shed 3.1 per cent and mainland China’s CSI 300 dropped 1.8 per cent after cities across China reimposed coronavirus restrictions to battle the spread of the highly contagious BA. 5 Omicron coronavirus subvariant.
The Beijing government has refused to approve foreign coronavirus vaccines as Chinese scientists race to develop a homegrown messenger RNA jab.
Elsewhere in markets, Brent crude oil fell 1.4 per cent to $105.58 per barrel.
The yield on the benchmark 10-year US Treasury bond, which underpins debt pricing worldwide, traded 0.02 percentage points lower at 3.08 per cent, up from about 2.8 per cent early last week.
