The Dow Jones Industrial Average was down 0.1% on Friday, the S&P 500 was up 0.2%, but the Nasdaq Composite was up 1.4%. They also suffered their sharpest weekly slip since COVID-19 began. Wall Street is in a bearish market with the S&P 500 more than 20% higher than its all-time high.
Cryptocurrencies were the hardest hit. Ether fell about 19 percent to $ 881, its lowest level since January last year, and stood at $ 1,005 on Sunday. Bitcoin and Ether, the two leading players in the crypto market, have dropped more than 70 percent from their all-time highs set in early November.
“Cryptocurrencies have risen with semi-religious fervor around the wonders of the blockchain, decentralized finance, government freedom, promises that it is a hedge of inflation, only to become a cart driven by extrapolation speculative from easy money and low interest rates, “he said. Shane Oliver, chief economist at AMP Capital.
“Easy money and low rates are being invested, pulling the carpet out of the craze.”
Investors are concerned about the risk of contagion of stocks, as cryptocurrencies are increasingly part of traditional asset portfolios, along with bonds and stocks.
The Australian dollar ended the New York session at 69.36 ¢, down 1.6% from last week’s low of 68.50 ¢. It has fallen 4.6 percent so far this year as fears of global growth sent investors to the security of the U.S. dollar.
The actions of Australian banks have been criticized for worrying that the more aggressive tightening of the RBA will lead to an increase in bad debts, higher financing costs and more difficult times in the mortgage market.
The technology sector has also been shattered, as its profit margins make them ultra-sensitive to higher interest rates. Technology stocks fell more than 2% last week with Afterpay owner Block Inc hit a record low of $ 81 on Friday. Xero and Life 360 skated to the lowest level in two years.
Crushing the brakes
Global stocks were shaken last week after several central banks took steps to fight crippling inflation.
The US Federal Reserve raised its benchmark rate by 0.75 percentage points on the largest increase since 1994, while the Swiss central bank hit markets with its first hardening in 15 years. The Bank of England raised its cash rate for the fifth time since December.
All this hardening fueled fears about a recession.
The bond market is setting the price on a contraction in the US economy. According to BCA Research, a reversal of the yield curve, where two-year borrowing costs are unusually higher than ten-year lending, has foreshadowed seven of the last eight recessions in the United States, with no false signals.
Dr. Oliver believes that a global recession can be avoided, but has increased his assessment to a 50/50 chance of contraction.
RBA-full week
Reserve Bank of Australia Governor Philip Lowe will speak on Tuesday Economic perspectives and monetary policybefore the minutes of its June policy meeting, when it surprised with a larger-than-expected increase in the cash rate.
The RBA imposed a rate hike of 0.5 percentage points last week, bringing the cash rate to 0.85 percent.
In a rare and surprise television interview last week, Dr. Lowe said a 2.5 percent cash rate was a “reasonable” expectation of how high rates would come “at some point,” but the speed with which what will happen will be determined by events. .
The RBA governor warned that inflation will reach a “very high” 7% high by the end of this year, but an additional $ 250 billion in savings will help households cope with the cost pressures of the RBA. life and falling house prices.
“With the RBA seemingly moving towards neutrality, like most central banks, the biggest question now is whether the RBA sees the need to move beyond 2.50 percent and into restrictive territory.” , said Taylor Nugent, an economist at NAB Markets.
The RBA will also publish its performance target review during the week. The central bank introduced control of the yield curve at the start of the pandemic when financial markets panicked.
It involved extending the RBA cash rate of 0.1%, which was a record at the time, to three years, setting the government bond rate at three years at the same level. But the strategy came to an abrupt and chaotic end after bond markets forced the RBA to abandon the target late last year.
Finally, Dr. Lowe will make another appearance on Friday at a panel in Zurich.
Financial markets have raised expectations that RBA will accelerate its tightening. They involve a series of sharp and rapid increases in interest rates, bringing the interest rate almost 3 percentage points higher for Christmas in what would be the most aggressive hardening of the central bank.