HONG KONG, June 22(ABC): Equities struggled Wednesday after a brief respite from last week’s painful rout across world markets, with recession fears continuing to build as central banks hike interest rates to combat decades-high inflation.
While Asia, Wall Street and Europe all enjoyed healthy gains on Tuesday, analysts warned the downbeat mood on trading floors means the selling is unlikely to end any time soon.
Fears about a global contraction have also put downward pressure on oil prices, despite China’s reopening moves, the US holiday driving season and tight supplies.
Federal Reserve boss Jerome Powell’s two-day testimony to Congress this week will be pored over for an idea about officials’ plans for fighting runaway prices, which are being fanned by supply chain snarls, China’s lockdowns and the war in Ukraine.
Most observers expect them to hike rates by three-quarters of a point several more times this year, having announced such a move in June — the sharpest lift in almost 30 years.
However, while many believe the Fed’s front-loaded tightening drive is needed — allowing it to begin cutting sooner as price rises settle back — there is a building consensus that the world’s top economy is heading for a contraction next year.
“The Fed has entered into a policy cocktail that we would describe as hammer time,” Gene Tannuzzo, at Columbia Threadneedle Investments, told Bloomberg Television.
“You have to be planning defensively at this point. There are a lot of questions on all risk assets.”