SYDNEY: Asian shares fell as the US stock futures extended their decline on rate worries, while a tighter lockdown in Shanghai stoked concerns about global economic growth and recession.
A series of rate hikes and hawkish communication came against a backdrop of plummeting Chinese and European activity, new plans for Russian energy bans and continued supply-side pressures, according to analysts at Barclays.
The central banks are forced to hike rates despite a slowing of growth because of the gloomy prospect of persistent inflation. The Chinese trade data for April was not as bad as anticipated, with exports up 3.9 per cent on the year and imports flat.
There was no let-up in China's zero-COVID policy, with Shanghai tightening the city-wide COVID 19 lockdown for 25 million residents.
Market sentiment was hurt by the speculation that Russian President Vladimir Putin might declare war on Ukraine in order to call up reserves during his speech at Victory Day celebrations. Putin has characterised Russia's actions in Ukraine as a military operation and not a war.
S&P 500 stock futures led the way with a decline of 1.1 per cent, while Nasdaq futures shed 1.0 per cent. The US 10 year bond yields went up to a fresh top of 3.15 per cent.
EUROSTOXX50 futures fell 1.5 per cent and FTSE futures 0.7 per cent.
The broadest index of Asia-Pacific shares outside Japan fell 1.3 per cent, and Japan's Nikkei 2.4 per cent. The yuan touched another 18 month low to trade at 6.7049 per dollar, while the Chinese blue chips fell by 0.8 per cent.
The Federal Reserve hiked by 50 basis points in June as investors tense ahead of the US consumer price report due on Wednesday, where only a slight easing of inflation is forecast.
In April, Core Inflation was up by 0.4 per cent, up from 0.3 per cent the previous month, even though the annual pace dips a bit due to base effects.
In Q1, the annualised monthly change in core CPI was 5.6 per cent, according to analysts at ANZ. That is too high for the Fed and we think that the FOMC won't relax about inflation until the core number moderates to around 0.2 per cent m m on a sustained basis.
The Fed is not the only central bank facing inflation pressures. The guidance from the ECB is becoming more hawkish. From the current 0.75 to 2.0 per cent, the Fed fund futures are priced for rates reaching 1.75 to 2.0 per cent in July, and are expected to climb to around 3 per cent by the end of the year.
The diary has a lot of Fed speakers this week, which will give them plenty of time to keep up with the hawkish chorus.
The US dollar was at a 20 year high on a basket of majors and 104.080 was the focus of the aggressive rate outlook.
Sean Callow, a senior FX strategist at Westpac, said that risk appetite is fragile and yield spreads continue to suggest further upside on the Dollar Index.
We look for continued demand for DXY on dips, with 104 already being probed and still potential for a run towards 107 multi-week. The euro was stuck at US $1.0510 and just over a whisker above its recent lows of US $1.0481, while the dollar was very much in control against the Japanese yen at 131.07.
The Group of Seven G 7 nations committed on Sunday to banning or phasing out Russian oil imports over time, which sawsawed in oil prices.
After an initial dip, Brent was quoted 12 cents higher at US $112.51, while US crude added 4 cents to US $109.81.
Gold was idling at US $1,872 an ounce, having struggled to gain traction as a safe haven recently.