By Geoffrey Smith
Investing.com -- The dollar is giving everything else a good, hard kicking as global markets price in the likelihood of the Federal Reserve raising interest rates still more, even at the risk of a global recession. Sterling and U.K. assets are having a particularly miserable time after the new government unveils a radical and - according to some - irresponsible plan to slash taxes. Boeing pays $200 million to settle SEC charges that it misled investors over the safety of the 737-MAX, and oil prices are testing new lows for the year as the dollar gets ever more expensive. Here's what you need to know in financial markets on Friday, September 23.
1. Dollar surges as Treasury yields suck the life out of global markets
The dollar continued its stampede higher, the latest leg up coming after purchasing managers' surveys in Europe showed both the Eurozone and the U.K. economies sliding into recession.
The dollar index, which tracks the greenback against a basket of six advanced economy currencies, rose to a new 20-year high over 112, as surging short- and long-term interest rates on dollars continued to suck in capital from around the world.
Yields on U.S. Treasury bonds continued to surge overnight as the market priced in the prospect of further interest rate hikes from the Federal Reserve. The yield on the 2-Year Treasury note, which is particularly sensitive to Fed expectations, rose to a new 15-year high of 4.26% before retracing a little.
2. U.K. markets in freefall after government announces massive tax cuts on top of energy subsidies
U.K. assets were in freefall across the board on Friday after financial markets reacted negatively to the new government’s plans to cut taxes aggressively in the hope of stimulating growth.
The pound slumped over 1.2% against the dollar, hitting a new 37-year low of $1.1079, and also lost over 0.5% against the euro.
In the stock market, the FTSE 100 fell 1.6%, while the more U.K.-focused FTSE 250 midcap index fell a more modest 0.6%.
Government bond yields hit their highest levels in years across the whole of the yield curve, as traders priced in the prospect of much heavier borrowing to fund a budget deficit that is set to widen sharply, as a result of tax cuts worth 45 billion pounds and energy subsidies that will cost around 60 billion pounds over the next six months alone.
3. Stocks set for weak opening; Dow futures
U.S. stocks are set to open sharply lower, with a whiff of capitulation in the air as surging bond yields tighten financial conditions for the U.S. and the world economy.
By 06:25 ET (10:25 GMT), Dow Jones futures were trading below 30,000, down 290 points or 1.0% from Thursday’s close. S&P 500 futures were down 1.1% and Nasdaq 100 futures were down 1.2%.
Stocks likely to be in focus later include Amazon (NASDAQ:AMZN), after a critical Wall Street Journal report about the safety standards of its drivers, and Boeing (NYSE:BA), which agreed to pay $200 million to settle the Securities and Exchange Commission’s charges that it misled investors over the safety of its 737-MAX airliners.
Both the data and the earnings calendar are effectively empty.
4. Hong Kong, Thailand relax long-standing COVID restrictions
There was better news out of Asia, with both Hong Kong and Thailand announcing major relaxations of their respective public health measures to control COVID-19.
Thailand will end a nationwide state of emergency that has been in place for two and a half years, downgrading the virus from a “dangerous” communicable disease to one that only requires surveillance. The emergency regime has dealt a serious blow to an economy that depends more than most on international tourism revenues.
In Hong Kong, meanwhile, authorities scrapped hotel quarantine for inbound travelers and signaled that a further relaxation is likely.
5. Oil slumps on demand destruction fears; rig count, CFTC due
Crude oil prices tested new lows for the year as the surging dollar continued to make the world’s most important commodity less affordable.
By 06:30 ET, U.S. crude futures were down 2.6% at $81.39 a barrel, while Brent futures were down 2.3% at $88.40, unimpressed by fresh newswire reports suggesting that OPEC and its allies may cut production to stop prices falling further. The bloc is already producing more than 3.5 million barrels a day less than its official output quotas, while a Russian government document cited by newswires on Thursday suggested that Moscow expects its own oil output to fall by around 6% next year under the impact of sanctions.
Baker Hughes’ rig count and CFTC positioning data round the week off later.