Markets continue to slide as WTI breaches $94 and US shutdown edges closer
- Evergrande crisis continues, driving the Hang Seng lower
- Spanish inflation on the rise, with energy prices raising concerns of a second peak
- Markets in risk-off mode, as US government shutdown edges closer
Equities throughout Europe and Asian have continued their pessimistic tone today, as fear maintains its stranglehold on market sentiment. In Asia, the real estate crisis appears to be rearing its head once again as Evergrande suspended trading just a day after their CEO was placed under police control. With the property giant missing payment on a $550 million onshore bond, it is safe to say that there are significant risks that Asian traders are likely to remain wary of as we move forward.
Inflation concerns are back in focus this morning, with Spanish CPI moving up to 3.5% just three-months after bottoming out at 1.9%. From a positive perspective, the core Spanish inflation gauge fell to 5.8% as the efforts of the ECB gradually feed through into the economy. While core inflation remains a key metric for central banks, with rise of energy prices will undoubtedly provide a key concern for markets and central bankers alike. While crude has found itself under pressure this morning, the incessant rise in WTI saw it establish a fresh one-year high after rising through $94 overnight. Restricted supply and strong demand raise the risk of a surge through the $100 mark, with market sentiment likely to be heavily linked with oil prices given the potential impact on inflation.
Despite central banks finally reaching their apparent ‘terminal rates’, the risk of a second wave of inflation raises the possibility of another period of monetary tightening. Market risks are all around us, with the potential for a US government shutdown coming as economic data starts to sour, and energy prices rise. While today’s final US Q2 GDP may be forecast an upward revision to 2.2%, markets are likely to look towards timelier data over lagging GDP figures. The looming government shutdown poses a distinct risk to US growth for Q3, with little optimism that we will see a deal to avert the breakdown next week.
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