Business

PARIS — Stock markets dropped again on Monday, extending last week's rout as investors brace for another big rate hike by the US Federal Reserve (Fed) that they fear could drag down the global economy.

Wall Street opened lower, with the Dow dropping 0.6 per cent.

The Paris CAC 40 and Frankfurt DAX were down in afternoon trading while Asian indices mostly closed lower. London was closed for the funeral of Queen Elizabeth II. 

"Traders are worried that they are going to hear more hawkish stance from central banks this week" which would "cut economic activity further", AvaTrade analyst Naeem Aslam said.

The Fed will announce its latest monetary policy decision on Wednesday as it seeks to tame decades-high inflation.

With recent data showing US inflation rooted at four-decade highs, investors are increasingly pessimistic about the outlook for the global economy.

Central banks raise interest rates to cool inflation, but higher borrowing costs also slow down economic activity.

Disappointing US inflation figures last week unnerved traders and ramped up bets for a third successive 0.75 percentage-point rise, while some have predicted a whole percentage point move.

Policymakers, including Fed Chairman Jerome Powell, have repeatedly said their ultimate aim is to bring inflation under control, even if that means sending the economy into recession.

"We're expecting a sharp interest rate increase and therefore a clear signal against galloping inflation," said Tim Emden, an independent market analyst.

Patrick O'Hare at Briefing.com said that a good question is why stock markets are still falling when they already took a wallop last week on the prospect of higher interest rates triggering an economic slump.

"The reason being is that the market doesn't have a comforting sense where the end rate will be, how long the end rate will remain the end rate and how low earnings estimates will go," he said.

The Bank of England and its peer in Japan are also holding key meetings this week, with the pound and the yen feeling the pressure from a strong dollar.

Yen under pressure 

Asian equity investors continued the selling on Monday.

Hong Kong closed down one per cent, even after reports that the city's government was considering ending mandatory hotel quarantine for incoming travellers.

Shanghai was also down despite news that megacity Chengdu was ending a two-week COVID-19 lockdown that saw 21 million people affected.

Tokyo was closed for a holiday.

The prospect of more big Fed rate hikes is also keeping the dollar at multidecade highs against its major peers, with the yen feeling most of the pressure as the Bank of Japan (BoJ) refuses to tighten policy.

The Japanese unit last week hit a fresh 24-year low of 144.99 to the dollar, though it has bounced slightly after comments from BoJ officials that signalled they were ready to intervene to provide support.

Oil prices tumbled around 3 per cent despite the news out of Chengdu as demand fears are fuelled by the growing fear of recession around the world.

"The market's growth concerns, meanwhile, are being fed by the inverted yield curve and are manifesting themselves in the commodities market," O'Hare said.

An inverted yield curve is the unusual situation where short-term interest rates are higher than long-term interest rates, and is often a signal of an impending recession.

WASHINGTON — The Federal Reserve (Fed) is poised to unleash another massive interest rate increase this week after the latest data showed a worrying US inflation picture, which confirmed the need for the central bank to continue to act aggressively.

Soaring prices have pushed annual inflation to a 40-year high, inflicting pain on American consumers and businesses, despite the welcome drop in gasoline prices at the pump in recent weeks.

The disappointing consumer price report for August, released last week, showed housing, food and medical costs continued to rise. And when volatile food and energy prices are stripped out, so-called core inflation accelerated.

Families have been struggling with rising prices sparked initially by high demand as the world's largest economy emerged from the pandemic amid supply chain snarls. The situation has been exacerbated by COVID lockdowns in China and surging energy and food prices due to Russia's war in Ukraine.

It is not just current high inflation that concerns policymakers, but the fear that consumers and businesses begin to expect rising prices will become a permanent feature, which could set off a dangerous spiral and a phenomenon called stagflation.

That fear has driven the Fed to front-load its rate hikes, rather than pursuing the more customary course of small, gradual steps over a longer period. 

The US central bank has cranked up the benchmark lending rate four times this year, including two straight three-quarter-point hikes in June and July.

The aim is to raise the cost of borrowing and cool demand — and it is having an impact: Home mortgage rates have now topped 6 per cent for the first time since 2008.

A third massive increase is expected on Wednesday at the conclusion of the Fed's two-day policy meeting. And some people are raising the possibility the US central bank could take an even bigger step.

But concerns are rising that the aggressive action could tip the US economy into recession, which would reverberate around the globe.

"The sizzling-hot, core inflation figures that came out this week for August have upped the pressure on the Federal Reserve to raise rates a full percentage point instead of 0.75 per cent at the upcoming meeting," Diane Swonk, chief economist at KPMG US, said in an analysis.

"This will be one of the hardest and most politically charged of decisions. It marks the Federal Reserve's first move toward an actual recession."

Avoiding a repeat 

of the 1970s 

Fed Chair Jerome Powell has made it clear that a recession is a risk he is willing to take. In fact, it is a risk the central bank must take to avoid an even more dire outcome: A repeat of the damaging, runaway inflation of the 1970s and early 1980s.

"We need to act now forthrightly, strongly as we have been doing and we need to keep at it until the job is done," Powell said in his last public comments before the policy meeting.

Powell's predecessor from the last high-inflation era, Paul Volcker, had to take extreme measures after rising prices became entrenched, resurging and surpassing the peak of the mid-1970s after repeated failed efforts to tame them.

That led to a deep recession and unemployment over 10 per cent.

The Fed's aim is to avoid "the kind of very high social costs" of the Volcker era, and maintain public confidence in the central bank's commitment to fighting inflation.

"The clock is ticking," Powell warned.

While the latest data showed US annual inflation slowed slightly to 8.3 per cent in August — from a peak of 9.1 per cent in June — prices actually accelerated slightly in the month, reflecting widespread price increases.

Central bankers have the luxury of a strong job market, low unemployment and a resilient US consumer, but many economists now see a recession as likely.

Former US Treasury secretary Lawrence Summers is among those warning that joblessness will have to rise to get inflation under control.

He also favours more aggressive Fed action.

"If I had to choose between 100 basis points in September and 50 basis points, I would choose a 100 basis points move to reinforce credibility," Summers said in a recent tweet.

JAKARTA — Indonesia has launched an anti-trust investigation into Google over the tech firm's insistence that its payment system be used for purchases from its app store, authorities said on Thursday, accusing it of unfair business practices.

The US Internet giant has been under legal scrutiny in a number of countries over its stipulation that its billing system be used by all buyers on Google Play.

Authorities in Jakarta said in a statement they suspected "Google has abused its dominant position by imposing conditional sales and discriminatory practices in digital application distribution in Indonesia."

Google Play is the largest app distribution platform in Indonesia, a country of around 270 million people.

Third-party developers offering their apps on Google Play are charged a 15 to 30 per cent service fee, higher than the 5 per cent imposed by other payment systems, according to an initial probe by the nation's anti-trust agency.

"The respective developers cannot refuse the obligation because Google can impose sanctions by removing their applications from the Google Play store and preventing them from making updates to their applications," the agency said.

Google Indonesia said on Friday that it would work with the Indonesian authorities "to demonstrate how Google Play supports developers".

It added that since early this month, it has started a pilot billing system, allowing an alternative payment system alongside the one used on Google Play.

The American multinational has faced a barrage of legal cases in the United States, Europe and Asia based on similar accusations.

Google has also faced claims that it unfairly forced its search engine and Chrome internet browser on phone makers using the Android operating system.

On Wednesday, the European Union's second-highest court ruled that "Google imposed unlawful restrictions on manufacturers of Android mobile devices".

The court upheld the EU's record fine of more than 4 billion euros ($4 billion) against Google

That case was the third of three major cases brought against Google by the EU's competition czar Margrethe Vestager, whose legal challenges were the first worldwide to directly take on Silicon Valley tech giants.

South Korea fined Google nearly $180 million last year for abusing its dominant market position in a similar case regarding the Android system.

JAKARTA — Sitting on the side of a Jakarta road anxiously waiting for his phone to ping, driver Muhammad Ridwan says it is now barely worth hurtling through thick smog every day to ferry passengers. A 30 per cent hike in fuel prices spurred hundreds of drivers of the most popular ride-hailing apps to hold protests across Indonesia as they struggle to make ends meet.

"I sometimes don't eat a proper meal the whole day to allocate my cash for fuel. If I don't have fuel, how can I work?" asked Ridwan, a contractor for Gojek — which alongside Singapore's Grab is among Asia's most valuable start-ups.

The drivers operate in an unregulated market and critics say the firms exploit them as "partners" or contractors, taking large cuts of their daily income.

To cut Indonesia's deficit during rising global inflation and soaring energy prices due to the war in Ukraine, President Joko Widodo slashed fuel subsidies.

It pushed the price of Petralite — Indonesia's cheapest fuel choice — from about 7,650 rupiah (50 cents) to 10,000 (67 cents) per litre.

'Cannot accept' cost 

On-demand drivers say the two ride-hailing giants have only hiked fares slightly — to the tune of 800 rupiah (5 cents) per kilometre — to cover the additional costs.

Both Gojek and Grab told AFP they imposed a rate change in line with government regulation.

Gojek, which earlier this year merged with e-commerce platform Tokopedia in a multibillion-dollar deal, said the objective of the rate change was to "support driver partners".

Grab said it was "designed to protect and maintain our driver-partners' welfare".

They both declined to disclose the rate increase but union leaders said it fell short of drivers' expectations.

"Drivers across Indonesia cannot accept the fare adjustment," said Igun Wicaksono, who heads a union of more than 100,000 drivers.

On a good day, drivers can earn up to 150,000 rupiah ($10). But where a refuelling stop once cost 20,000 rupiah ($1.35), it can now cost up to 35,000 rupiah ($2.35).

Drivers sometimes have to refuel twice in a shift, leaving them with a threadbare profit.

'Don't just throw promises' 

More competition from cheaper delivery apps is adding further pressure on Gojek and Grab drivers, leading to fears they won't be able to provide for their families.

"It significantly burdens me whenever I buy fuel these days," said 38-year-old Grab driver Iwan Nur Akbar, who had waited an hour for an order to ping on his phone.

"Thankfully I can still afford food for my family as we regularly get rice from government schemes," he said.

The gig economy, with its complex rewards-based system, has been in the spotlight globally in recent years with workers in several countries holding protests against their tech employers. 

Anger was already bubbling in Indonesia before the fuel price hike with claims of unfair practices and poor working conditions.

In July, one driver sewed his lips shut to signal how drivers' concerns on go unheard.

Gig drivers warn that the lack of action could result in mass protests across the country. So far, protests have been limited to a few hundred, and met with a huge deployment of around 8,000 police officers in Jakarta.

With Grab and Gojek accounting for more than four million drivers, that is a daunting prospect for the government.

"Don't just throw promises," said Gojek driver Saiful Ridwan, 38, referring to government assurances of help as he waited outside Jakarta's Pasar Senen wholesale market.

"Don't let poor people become poorer."