Asia Pacific markets are likely to fall today after markets turned risk averse overnight. Recession fears are rising again after Federal Reserve Chairman Jerome Powell clarified that raising interest rates could lead to a recession. "It's certainly a possibility," Powell said in a speech to Congress. U.S. stock indexes responded by paring early gains and closing lower. The risk-sensitive Australian dollar fell against the greenback.
It is the euro, not the dollar, that benefits from safe-haven flows in currency markets. Strong buying of short-end Treasuries dampened dollar strength, with yields also falling broadly across maturities. The dollar-sensitive 5-year Treasury note rate fell to its lowest level since June 10. Bond investor appetite spread across bond markets across the Asia-Pacific region, with government bond yields falling in Australia and New Zealand.
Energy markets are another casualty of growing expectations of a coming recession. WTI crude oil prices fell nearly 4% to reach their lowest trading level since early May. The Fed's signal on the possibility of a recession is supportive of their policy in this regard, as lower oil prices may help cool inflationary pressures. U.S. President Joe Biden called on Congress to suspend the federal gasoline tax until September. With gasoline prices at or near record highs in much of the country, the U.S. president is facing growing political pressure.
Elsewhere, the BRICS Summit will kick off online. The leaders of Brazil, , Russia, India, China and South Africa will discuss economic cooperation and other matters. This will also be the first time Russian President Vladimir Putin has participated in a meeting with other leaders since launching the war in Ukraine.
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