Asian stocks fell sharply on Monday, their largest setback since June, on renewed fears of a U.S. interest rate hike as early as next week. The drop follows Friday’s U.S. trading session which saw the worst losses since Brexit. The Dax looks set to open with triple digit losses as well, extending the slump.
Traders are concerned that central banks are running out of creative ways to stimulate the global economy and that the age of austerity may be signaling its end. U.S. Treasury Secretary Jacob Lew announced his preference of growth rather than austerity, and he is aggressively attempting to bring other G-20 governments on board.
"With global growth still lackluster, monetary policy seemingly ineffective and government bond yields unprecedentedly low, the case for fiscal stimulus has become more compelling," commented Andrew Kenningham, senior global economist at Capital Economics. "Partly as a result, we now expect advanced economies overall to benefit from a small fiscal boost in the next couple of years."
At least three Fed officials are set to speak today, and their comments may add additional pressure on the bond and equities markets.
Repercussions in the Forex Market
The sudden bout of risk aversion in the currency markets sent traders fleeing to safe havens such as the yen. The Australian dollar fell to 77.21 against the yen while the yen held steady at 102.55 against the U.S. dollar.
In the commodities market oil continued its decline, following reports that showed that increased drilling in the United States can still allow producers to operate profitably, even with additional supply.