US sharemarkets tumbled this week, closing out the month of August with a 4.28 per cent loss after Federal Reserve chair Jerome Powell’s hawkish testimony at the central bank’s annual symposium at Jackson Hole.
Powell’s shattered hopes of an imminent dovish pivot on rates by making it clear that fighting inflation is the Fed’s top priority, even if some “pain” is required.
In Australia the ASX200 was one of the few major sharemarkets to finish August in positive territory.
However, a heavy fall on Thursday saw all August’s gains and more erased in just one messy session.
Here are the top five things that happened in markets this week.
1. Eurozone inflation hits a record high
Headline inflation in Europe in August hit a record high of 9.1 per cent year on year, versus an expected 9 per cent.
Core inflation also came in stronger at 4.3 per cent, versus the expected 4.1 per cent.
The market is now expecting the European Central Bank to follow in the footsteps of the Federal Reserve and deliver a supersized 75 basis point rate hike when it meets next week to help tame inflation.
2. Cleveland Fed president Mester channels her inner Volcker
Cleveland Fed president Loretta Mester sounded hawkish as she channelled her ‘inner Volcker’.
In prepared comments, Mester said: ‘‘As [former Fed chairman] Paul Volcker said as he fought inflation in the 1980s, ‘…failure to carry through now in the fight on inflation will only make any subsequent effort more difficult, at much greater risk to the economy’.’’
3. USD-JPY trades at its highest level since 1998
Hawkish Fed speak and rising US yields propelled the USDJPY – the foreign exchange between the US dollar and the Japanese Yen – to fresh cycle highs at 139.65 yen.
The yen is trading at its weakest level against the US dollar since 1998.
4. Crude oil reverses lower
After trading above $97.00 per barrel early in the week, crude oil prices collapsed below $89 per barrel, locking in a 10 per cent fall for August.
The retreat came following a new round of lockdowns in China and hawkish Fed speak, raising questions over economic growth and future demand for crude oil.
5. BHP share price tumbles
The share price of index heavyweight BHP fell more than 10 per cent this week as forecasts from the US Federal Reserve raised questions about economic growth and demand for commodities.
The drop was compounded by BHP stock going ex-dividend $2.53, which accounted for 7.3 per cent of the fall.
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