Global stocks are in a freefall today, with the Dow Jones Index futures falling by over 1,100 points. Asian equities, especially Japan’s Nikkei 225 and South Korea’s Kospi, were the worst laggards as they declined by over 7%. Other top laggards were indices like the ASX 200, DAX, and Hang Seng.
Stock Market Crash Continued as Energy Prices Soared
The ongoing stock market crash happened as investors reacted to the ongoing war in Iran and the soaring geopolitical challenges that helped to push crude oil prices higher. Brent and the West Texas Intermediate (WTI) prices jumped from $90 on Friday to $115, the biggest jump in years.
The surge happened as some key oil producers like Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) slashed their oil production because of the ongoing Iranian attacks. As a result, there are concerns that the ongoing oil shock will impact companies and top countries.
The most affected countries are Japan and South Korea, which depend on imported crude oil and natural gas from the Middle East. While these countries have substantial oil and gas in storage, analysts believe that they will be in a crisis the longer the war continues.
Analysts expect that there will be substantial inflation in the United States and other countries as the war continues, putting central banks in a bind.
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Central Banks in a Bind
For example, the decision by the Federal Reserve to hike rates to beat inflation will lead to a lower economic growth. On the other hand, slashing interest rates to stimulate the labor market will lead to a higher inflation. In a statement, Ed Yardeni said:
“The US economy and stock market are stuck between Iran and a hard place currently. So is the Fed. If the oil shock persists, the Fed’s dual mandate would be stuck between the increasing risk of higher inflation and rising unemployment.”
Analysts now expect the Federal Reserve to be more hawkish this year as inflation remains at an elevated level. For example, data shows that US bond yields continued rising on Monday, with the 10-year and 30-year rising to 4.208% and 4.8%, respectively.
The US dollar index (DXX) continued soaring today as investors moved to its safety. It jumped by 0.60% to $99.8, up by over 3% from its lowest level this month.
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