- European stocks and US futures falter as risk mood evaporates
- Oil prices fall more than 4% ahead of expected Biden action
- Bond yields are falling but euro zone spreads are widening
- Dollar bulls are driving the yen to its lowest level in 24 years
- Graphic: global asset performance
LONDON (Reuters) – Global stock markets and oil prices fell on Wednesday as the constant flickering over interest rate hikes and recessions resumed, while the Japanese yen hit a 24-year low against the seemingly unstoppable US dollar.
The enthusiasm that gave Wall Street its best day in a month on Tuesday abruptly faded as Europe suffered a morning decline of 1.5% and Brent crude prices fell 4% after a downbeat Asian trading session.
Enthusiastic dollar bulls have taken no prisoners in the foreign exchange markets either on bets that Federal Reserve Chairman Jay Powell will later reiterate to Washington the need to raise US interest rates hard and quickly.
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In addition to the yen’s decline again, the Euro brought back 0.3%, the oil-sensitive Norwegian Crown 1.3% and the British Pound 0.7% as data confirmed that inflation there is now at a 40-year high of 9.1%. Read more
“It is remarkable how quickly the market has turned around again after the slight pressure in sentiment yesterday,” said John Hardy, Saxo Bank’s forex strategist.
“It seems that the commodity market is calling for a (global) recession,” he added. “And the dollar is heading towards strength as a safe haven.”
These recession fears also emerged in the bond markets as US and German government bonds rallied as traders sought out traditional safe havens.
The yield, moving in the opposite direction to price, on the benchmark 10-year US Treasury fell to 3.21% and the 10-year yield in Germany fell by 10 basis points to 1.65%, after hitting its highest level since January 2014 at 1.928% last week. .
However, the margins between debt-laden Germany and Italy widened again, with Luigi Di Maio, Rome’s foreign minister in a complex coalition government, saying he would leave the Five Star Movement to form a new parliamentary group, a move that threatens to create new instability. Prime Minister Mario Draghi. Read more
Wall Street futures are down more than 1% meaning the S&P 500 looks set to consolidate for what could be its worst start to a year since 1932, even though Deutsche Bank Jim Reed was trying to see the positive.
“The 5 worst performances in the first half of the S&P 500 before this year, all of them performed very well in the second half,” he said, noting that on four of those five occasions, the US index rose at least 17%.
In order of decreases in the first half, we note 1) 1932: H1 -45%, H2 + 56%, 2) 1962: H1 -22%, H2 + 17%, 3) 1970: H1 -19%, H2 + 29%, 4) 1940: H1-17%, H2+10%, 5) 1939: H1-15%, H2+18%,” Reed showed.
Overnight, MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It fell 2.3 percent, close to a five-week low. Hong Kong-listed tech heavyweights plunge more than 4% (.HSTECH) Although the Nikkei in Tokyo (.N225) It managed to keep its losses at only 0.4%.
Investors continue to assess how worried they are about the possibility of central banks driving the global economy into recession as they try to rein in severe inflation while raising interest rates.
Major US stock indexes rose 2% overnight on the possibility that the economic outlook might not be as bad as thought during trading last week when MSCI’s main global stock index was (.MIWD00000PUS) It recorded the largest weekly percentage decline since March 2020.
“I think this latest post-holiday bear market rally is a reflection of investor uncertainty about whether or not we’ve seen peak inflation and Fed tightening — I think we’re close,” said Invesco global market strategist for Asia Pacific David Chao.
US Federal Reserve Chairman Jerome Powell is set to testify before Congress on Wednesday with investors looking for more clues about whether a 75 basis point interest rate hike in July is imminent.
Economists polled by Reuters expect the Federal Reserve to raise interest rates by 75 basis points next month, followed by a half percentage point rise in September, and not fall back to a quarter of a percentage point until November very early. Read more
Most other global central banks are in a similar position, with the exception of the Bank of Japan, which pledged last week to maintain its ultra-low interest rate policy. In contrast, the Czech Central Bank was expected to raise interest rates by as much as 125 basis points later with inflation there to double digits.
That gap between low interest rates in Japan and higher US interest rates weighed on the yen, which hit a new 24-year low of 136.71 per dollar in Asian trading, before drifting further to 136.20.
The Bank of Japan’s monetary policy meeting minutes released on Wednesday that were released on Wednesday showed the central bank’s concerns about the impact of a depreciating currency on the business environment in the country. Read more
The other big move was in the commodity markets. A source familiar with the plan told Reuters that the 4% drop in oil prices came amid heavy recession concern, and US President Joe Biden is expected to call later for a temporary suspension of the 18.4-cents-a-gallon federal tax on gasoline.
Brent fell five dollars to 109.79 dollars a barrel, while US crude fell 5.9 percent, or 5.37 dollars, to 104.15 dollars. Metals also decreased, with copper, nickel, aluminum and tin ranging between 2.9% and 5.2%.
PVM’s Stephen Brennock spoke of oil noting the expected summer demand surge: “The latest in a long line of attempts to cool price hikes at the pumps is having the desired effect.”
“However, this sudden reaction will stand the test of time by no means guaranteed.”
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Additional reporting by Sam Byford in Tokyo and Shadia Nasrallah in Bengaluru; Editing by William MacLean
Our criteria: Thomson Reuters Trust Principles.