Global markets on edge, rand softer as US Fed meets to tackle high inflation - IOL
Global markets are on edge as investors brace for a possible US rate hike, with surging oil prices and sticky inflation pushing bond yields higher and stocks lower.
Oil prices jumped, US bond yields rallied, and equities retreated on Tuesday, as the Federal Reserve looked set to hike interest rates with high inflation and AI concerns dominating market sentiment.
With crude futures pushing towards $110 a barrel, average diesel prices in the United States struck a record high of just under $6.27 a gallon, heaping pressure on President Donald Trump ahead of midterm congressional elections.
"There's no let-up in the volatility rippling through financial markets, with energy prices staying painfully elevated and worries swirling about the knock-on effect for inflation and interest rates," noted Susannah Streeter, chief investment strategist at Wealth Club.
The US Federal Reserve begins a key rate-setting meeting Tuesday with markets expecting policymakers to pull the trigger on a hike to tackle persistently high consumer prices in the world's biggest economy.
Market expectations for a 25-basis-point rate increase have surged after official data published last week showed US annual inflation remaining far above the Fed's target, boosting the dollar.
The rand was marginally softer on Tuesday morning, pressured by the firmer dollar and rising US yields as risk sentiment soured ahead of the FOMC meeting. It was trading at R16.27 to the US dollar, R18.77 to the euro and R21.94 to the pound.
According to Bianca Botes, managing director at Citadel Global, the currency is being hit from multiple directions, including a firmer dollar, the oil shock, softer gold and domestic fragility, including a second-quarter GDP contraction and a sharp drop in mining output.
The surge in energy costs has ramped up pressure on central banks to raise borrowing costs.
The European Central Bank last week lifted interest rates in the eurozone, although the Bank of England is forecast to maintain its benchmark cost on Thursday, as the UK economy struggles for growth.
South African analysts are predicting a 25 basis point hike for local interest rates when the MPC meets later this month.
European and Asian stock markets dropped Tuesday after Wall Street kicked off its week with losses.
There has been renewed weakness for technology stocks after executives driving the AI sector said advances in artificial intelligence should be slowed.
Trump on Monday dismissed fears that artificial intelligence could wipe out humanity, repeatedly calling them a hoax and rejecting global calls to put guardrails around the fast-moving technology.
Anthropic chief Dario Amodei, whose company makes the popular Claude AI system, opened the floodgates on Saturday when he called for the sector to slow down.
His comments were echoed by OpenAI's Sam Altman and SpaceXAI's Elon Musk.
Microsoft on Monday published a "humanist AI code of conduct" as the concerns grew.
"AI should not exceed human control. Models should remain subordinate to humanity," read one part.
