Australian shares are likely to plummet after the US Federal Reserve announced another rate hike this week. The announcement sent Wall Street stocks slumping, and these stocks are now reportedly deep into the red. Traders are fleeing to safety, according to reports, but with the looming crisis in Britain, the trade war between the US and China and other problems in the Eurozone, there might not be anywhere to hide.
Australian Trade Minister Simon Birmingham has been hard at work in ensuring better trade relations with the European Union in preparation for a hard Brexit, a scenario that experts say is very likely. The problem is that other factors could cause the AUD to stumble, according to analysts.
Global financial markets lost earlier gains after the Federal Reserve’s announcement, and as forex trading with an AUD focus experiences more volatility, the Fed also noted that there will be another increase in interest rates in the coming year. The AUD hit a seven-week low at 71.04 US cents, down from 71.93 US cents on Wednesday. Reports on Thursday noted that global markets are heading for another crisis and that the events happening now are similar to those that preceded the Great Depression.
Tech sell-offs also happened on Wall Street, as the Dow Jones plummeted 464.06 points to 22,859.6. The S&P 500 also fell by 1.5% to 2,467.41 on Thursday. American stocks are tumbling like they did during the Great Depression, reportedly alarming the markets.”This is clearly a disappointment for those hoping for a dovish rate hike,” said David Joy, Chief Market Strategist at Ameriprise Financial in Boston. “It is a more moderate rate hike, but it is a rate hike, and there is still a gap between where the Fed is and where the market is in terms of policy expectations for next year.”
Additional rate hikes to come
Jerome Powell, Chairperson of the Federal Reserve, recently inspired selling pressures in American stocks with remarks that he made in the media. Powell said that adjustments of the balance sheet reduction were not an option. The Fed increased interest rates for the fourth time in 2018 to reflect America’s continued economic strength. Wednesday’s increase from 2.25% to 2.5% lifted the benchmark rate to its highest since the financial crisis of 2008. This translates to higher borrowing costs for many Americans, according to experts.
The Federal Reserve went ahead with the rate hikes despite US President Donald Trump’s opinion that said hikes are threatening the country’s economy. Powell told the media on Wednesday that the President’s tweets will not have any bearing on the Fed’s policies.
The rate hike should dampen investors’ interest as well as their appetite for riskier investments, said Jorge Mariscal, Chief Investment Officer at UBS Global Wealth Management. He added: “People are worried about growth, and to hear the Fed isn’t [worried] concerns the market. In turn, that supports the US dollar, and that is negative news for emerging markets in general.”
A global problem
Aside from the more prominent problems affecting Wall Street, Australia and the rest of the world, a jolt in terms of growth came from Japan recently as well. Japanese authorities said that their export growth experienced a crawl in November, and the slowdown has continued. The situation happening in Japan is indicative of how the issue is going to spread, according to reports.
Household names are also feeling the heat. FedEx’s shares, for example, plummeted over 12%, effectively pushing its stock down. The markets are adjusting to numerous factors, according to experts. A consensus is already out – the world’s economies will be seeing a slowdown.
As markets expect growth rates to come to a crawl, yields in Australia and Japan reached fresh lows. Major economies are weakening, and fears of a crisis are now hitting the market, as seen by the many sell-offs this week. Emerging economies are also at risk, and their growth is likely to be dampen, reports said.
Conditions are ripe for yet another global crisis, and a September report by The Guardian said that this would happen in 2020. The report added that given the problems that the global economy is facing, markets do not have the tools for effective mitigation. Governments would have their hands tied in such a scenario.
Trump’s attacks against the Fed may very well be fair, according to experts, as additional hikes will not help the economy. A crisis stemming from the United States can affect other nations and put emerging markets in precarious situations. This is bad timing, according to analysts, as other problematic situations are happening in the Eurozone. Germany’s economy is contracting, while Italy and France also have deficits to contend with. The UK’s exit from the European Union will also cause the pound to dive and have immediate effects on people and the flow of goods.