After the latest red-hot U.S. inflation data heightened market anxieties about Fed rate rises and a potential recession, European equities sank on Thursday and the safe-haven currency surged.

According to statistics released on Wednesday, consumer prices in the United States increased 9.1 percent year on year in June, up from 8.6 percent in May. 

The data was seen as strengthening the argument for the Federal Reserve to boost interest rates quickly. At the July meeting, policymakers may contemplate a 100 basis point rise, according to Atlanta Federal Reserve Bank President Raphael Bostic. 

Money markets were pricing in a 54 percent likelihood of a full percentage point increase at the July meeting and a 46 percent possibility of a 75 basis point increase as of early European trade.

By 1106 GMT, Europe’s STOXX 600 index (.STOXX) had fallen 1% to an 8-day low. The FTSE 100 (.FTSE) in London fell 0.9 percent.

The selling seemed to be continuing on Wall Street, with S&P 500 futures down 1.3 percent and Nasdaq futures down 1%.

JPMorgan Chase & Co, America’s largest bank, announced a drop in second-quarter earnings. Geopolitical tension, soaring inflation, dwindling consumer confidence, unprecedented quantitative tightening, and the Ukraine crisis, according to CEO Jamie Dimon, “are very likely to have negative consequences on the global economy sometime down the road”

The dollar index rose 0.4 percent to 108.7, while the dollar rose 1.3 percent versus the yen, reaching its highest level since 1998.

The British pound fell 0.5 percent to $1.1832. Former finance minister Rishi Sunak received the most votes from Conservative parliamentarians in the first ballot to choose who would replace Boris Johnson as Conservative party leader. more info

The euro was down 0.5 percent at $1.001, having fallen below parity for the first time since 2002 on Wednesday.

The euro has been under pressure as a result of the European Central Bank trailing behind the Fed in terminating its decade-long ultra-easy monetary policy, as well as the economic concerns associated with the eurozone’s reliance on Russian gas. 

The European Commission scaled up its expectations for eurozone economic growth this year while lowering its estimates for inflation. 

Germany’s 10-year government bond rate rose 7 basis points to 1.219 percent.

Italian rates have risen substantially ahead of a parliamentary confidence vote that may bring the country’s government down.

The 10-year yield in the United States went up around 6 basis points to 2.9614 percent. According to Deutsche Bank, the 2-year, 10-year portion of the Treasury yield curve is the most inverted it has been this cycle. 

Inversion of the yield curve, which occurs when short-term interest rates exceed longer-term interest rates, is often seen as a sign that markets are predicting a recession.

Oil prices plummeted as speculators predicted that a significant rate rise in the United States would reduce oil demand. 

Singapore’s Monetary Authority and the Philippines’ Bangko Sentral ng Pilipinas startled markets by tightening monetary policy in off-cycle movements. 

Source: Reuters


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