ASX to plunge 2 per cent, recession worries hammer global equities

On bitstamp.net, bitcoin down 5.9 per cent to $US20,554.67 near 6.40am AEST. Another casualty of the crypto collapse is Three Arrows Capital. The Financial Times reported the hedge fund failed to meet lender margin calls.

The yield on the US 10-year note was 8 basis points lower to 3.21 per cent at 4.36pm in New York.

All 11 of the S&P 500’s industry groups slumped, paced by a more than 5 per cent drop in energy even though the price of oil was higher, near $US120 a barrel.

The S&P 500 now implies an 85 per cent chance of a US recession amid fears of a policy error by the Federal Reserve, according to JPMorgan Chase & Co. strategists.

The warning from quant and derivatives strategists is based on the average 26 per cent decline for the S&P 500 during the past 11 recessions and follows the US benchmark’s collapse into a bear market.

“In all, there appear to be heightened concerns over recession risk among market participants and economic agents, which could become self-fulfilling if they persist prompting them to change behaviour,” the strategists led by Nikolaos Panigirtzoglou wrote in a note. “Market concerns of a risk of policy error and subsequent reversal have increased.”

In a series of tweets, Paul Krugman wrote that it appears that Fed policymakers have become “more realistic”.

“What the Fed is now projecting is pretty much what I called the Goldilocks scenario,” he said, adding: “Not a recession, exactly, but a ‘growth recession’ in which below-potential growth causes at least some increase in unemployment. Previous Fed projections didn’t make room for that, which was hard to justify. Now they do.”

Krugman also said that there are “obvious risks in both directions: inflation expectations continue to rise, or the monetary tightening proves to be overkill and sends us into outright recession. But at least the Fed is now telling a coherent story”.

Today’s agenda

Local: BusinessNZ manufacturing PMI May

Overseas data: Euro zone CPI May…

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