Global stocks took a beating on Wednesday amid speculation that the Federal Reserve in the US could announce an interest rate increase some time in the next three months.
The speculations have been sparked by better-than-expected data from the US Labor Department last week, which showed that the US economy had added 295,000 jobs in February.
The Fed has not raised rates since it launched its $85-billion bond-buying stimulus (quantitative easing) program in the wake of the sub-prime mortgage crisis in 2008.
Low interest rates have helped companies borrow more, have helped encourage investment, and have kept the value of the US dollar low, which works great for companies selling wares to foreign markets.
But fears of an imminent rate hike announcement from the Fed has already pushed the value of the dollar up against almost all major currencies, in particular the euro.
On Wednesday, Asian stocks took the lead from their US counterparts and dropped to two-month lows.
South Korea’s Kospi lost 0.3 per cent to 1,979.17 while Hong Kong’s Hang Seng dipped slightly by 0.2 per cent to 23,838.63. China’s benchmark Shanghai Composite Index, however, rose 0.8 per cent to 3,313.26 on better-than-expected data, despite an overall slowing of the economy.
Meanwhile, in Australia, the SP/ASX 200 lost 0.4 per cent to 5,800.40.
But in the US, prospects were a bit more grim. Major indices late on Tuesday appeared to reverse all the gains of the past few months.
The Dow Jones Industrial fell 1.9 per cent or 332.78 points to 17,662.94. The SP 500 fell 35.27 points, or 1.7 percent, to end at 2,044.16. The Nasdaq composite lost 82.64 points, or 1.7 percent, to 4,859.79.
The ‘not-a-matter-of-if-but-when’ analysis regarding the US rate hike has all but ensured that the US dollar will continue its five-month streak against other currencies.
On Wednesday, the euro fell to a 12-year low of 1.05 against the dollar; the greenback, meanwhile, has continued to push against the sterling, gaining just under seven per cent in the past three month period.