Stock indices fall ahead of the Jackson Hole symposium

The focus for investors this week is Fed Chairman Jerome Powell’s Friday speech at the Central Bank conference in Jackson Hole to get additional signals on how aggressive the Fed may be in raising interest rates. Analysts believe that Powell will try to sound hawkish about lowering inflation expectations and tightening financial conditions. That’s why there is a negative catalyst in the market right now.

The European Central Bank should keep raising rates even if a recession in Germany is becoming more likely because inflation will remain unacceptably high until 2023, Bundesbank President Joachim Nagel told a German newspaper. The Eurozone economy continues to move towards recession. European energy prices are soaring because of a hot summer and fears that Russia is using energy exports as a weapon against the bloc. EU indices fell after Russia announced a three-day shutdown of gas supplies to Europe via the Nord Stream 1 pipeline later this month. Investors fear the shutdown could exacerbate the energy crisis.

Analysts believe the Bank of England won’t be able to raise rates further because of the weak economy. Britain’s high inflation rate in recent decades and last week’s drop in consumer confidence increased the possibility that the country is headed for stagflation.

Speculation that the Fed would decide to raise rates by 75 basis points in September instead of 25 led the dollar to rise for the fourth straight day and to a six-week high. That sent gold and silver down as US government bond yields rose as the dollar index rose, and the precious metals have an inverse correlation to that indicator.

Fears that Iranian oil may return to the world market led crude oil prices to near six-month lows on Monday. As a result, the head of OPEC, Saudi Arabia’s top representative, threatened to cut output if the oil market continued to fall. Israel actively opposes the renewal of the deal between the US and Iran. Israel is alarmed by the growing likelihood that its nemesis, Iran, will receive billions of dollars from the deal, which could be used on the country’s new terrorist threats. Also, one of the points of the agreement that Israel is not happy with is that the IRGC should be removed from the list of terrorist organizations. The IRGC is Tehran’s elite security service and has been blamed for many terrorist attacks around the world.

Asian markets were also down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.47%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.59%, and Australia’s S&P/ASX 200 (AU200) lost 0.95%. Signs of weakness in the Chinese economy are a bearish signal for broader Asian markets, given that the country is a major regional trading hub.

Japan’s Finance Ministry will request 26.9 trillion yen ($195.5 billion) in debt service for the fiscal year beginning in April 2023. Debt service costs account for over 20% of Japan’s annual budget expenditures, making it the second-largest item after colossal social welfare spending.

Singapore’s Core Consumer Price indicator jumped to a 14-year high in July. The indicator reached 4.8% (the previous 4.7%). Overall inflation reached an annualized rate of 7% (the previous 6.7%).