- European stocks are declining as the risk to the mood evaporates
- Oil prices fell by more than 4% before the ceiling was moved to the United States
- Bond yields are declining, but spreads in the euro area are widening
- Dollar bulls send the yen to a new 24-year low
- Graph: Global asset efficiency
LONDON, June 22 (Reuters) – World stock markets and oil prices fell on Wednesday after sustained fluctuations in rising interest rates and recessions hit again as the Japanese yen hit a new 24-year low against a seemingly unstoppable US dollar.
The enthusiasm that gave Wall Street its best day in more than a month on Tuesday suddenly faded when Europe opened 1.5% lower and Brent oil prices fell 4% after that, which was also less favorable. asian session.
The raging dollar bulls also did not take captive bets that Federal Reserve Chief Jay Powell would repeat to Washington later the need for a sharp and rapid rise in US interest rates.
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As well as exacerbating the yen’s woes, it toppled the euro by 0.3%, Norway’s oil-sensitive crown fell 1.3% and the British pound fell 0.7% as data confirmed that inflation there is now at A 40-year high of 9.1%. Read more
“It’s remarkable how quickly the market turned again after that slight rise yesterday,” said John Hardy, a strategist at Saxo Bank FX.
“The commodity market seems to be called a (global) recession,” he added. “And the dollar is turning to strength as a safe haven.”
These fears of a recession have also manifested themselves in bond markets, where US and German government bond yields have fallen as traders have sought traditional safe havens.
Yields on 10-year US reference bonds fell to 3.233%, while Germany’s 10-year yield fell 7 basis points (bps) to 1.262%, reaching its highest level since January 2014 at 1.928%. .
But spreads between Germany and heavily indebted Italy widened again. Foreign Minister Luigi Di Mayo has said he is leaving the Five Star Movement to form a new parliamentary group supporting the government, a move that threatens to bring new instability to Prime Minister Mario Draghi’s coalition. Read more
Overnight, MSCI’s broadest Asia-Pacific stock index outside Japan (.MIAPJ0000PUS) fell 2.3 percent to near five-week low. Hong Kong-based heavyweight companies fell more than 4% (.HSTECH), although Tokyo’s Nikkei (.N225) managed to keep its losses at just 0.4%.
Investors continue to assess how worried they should be about central banks potentially pushing the global economy into recession as they try to curb hot inflation by raising interest rates.
Major US stock benchmarks rose 2% overnight due to the possibility that the economic outlook is not as bad as it was thought during trading last week, when the S&P 500 (.SPX) registered its biggest weekly percentage decline since March 2020
But Wall Street sentiment also didn’t seem to continue with the S&P 500 and Nasdaq futures, both falling nearly 1 percent on Wednesday.
“I think this recent post-holiday bear market rally is a reflection of investors’ uncertainty about whether we’ve seen the peak of inflation and the Fed’s hawk or not – I think we’re close,” said global market strategist Invesco. for the Asia-Pacific region David Chao.
US Federal Reserve Chairman Jerome Powell is due to testify before Congress on Wednesday, with investors looking for further clues as to whether another 75-point increase in interest rates is expected in July.
Economists polled by Reuters expect the Fed to raise interest rates by 75 basis points next month, followed by a rise of half a percentage point in September and will not return to moves from a quarter of a percentage point until November at the earliest. Read more
Most other global central banks are in a similar situation, with the exception of the Bank of Japan, which last week promised to keep its policy at ultra-low interest rates. In contrast, the Czech central bank was expected to raise interest rates by a staggering 125 basis points later with inflation there, which turned in double digits.
This gap between low interest rates in Japan and rising US interest rates weighed on the yen, which hit a new 24-year low of 136.71 per dollar in Asian trade before rising to 136.20.
The minutes of the April meeting of the Central Bank of Japan, released on Wednesday, show the central bank’s concerns about the impact that a falling currency could have on the country’s business environment. Read more
The other big move was in the commodity markets. The 4% drop in oil prices came amid fears of a recession and with US President Joe Biden expecting to call for a temporary suspension of the 18.4-cent gallon-per-petrol tax on Wednesday, a source told Reuters. for the plan.
Brent fell $ 5 to $ 109.79 a barrel, while US crude fell 5.9 percent or $ 5.37 to $ 104.15.
“The latest in a long series of attempts to curb rising pump prices is having the desired effect. However, whether this knee response will stand the test of time is by no means guaranteed,” said PVM’s Stephen Brennock, citing an expected jump. demand in the summer.
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Additional reports from Sam Byford in Tokyo and Shadia Nasrallah in Bengaluru
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