HONG KONG, July 12 (Reuters) – Global stocks faltered, oil fell and the euro edged closer to parity with the safe-haven dollar on Tuesday as the prospect of further tightening by central banks, renewed outbreaks of COVID in China and Europe’s energy shortages have spooked investors.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.3 percent to its lowest level in two years, while Japan’s Nikkei (.N225) lost 2 percent.
Futures also pointed to an open week in the US and Europe as US S&P 500 e-minis lost 0.6%, Nasdaq futures fell 0.7%, Euro Stoxx 50 futures across the region lost 0.8%, and FTSE futures fell 0.44%.
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The euro fell to $1.0005 against the US dollar, approaching parity for the first time since December 2002, as investors worried the energy crisis would tip the region into recession.
“Risk-averse sentiment is dominating global markets,” said Yuting Shao, macro strategist at State Street Global Markets.
“The dollar is the main international reserve currency. So when there is a risk of a recession or an increase in volatility, the greenback is the currency that people rush to because it is the safest,” Shao added.
The dollar index, which tracks the currency against six peers, rose to 108.44, its highest level since October 2002.
This week’s focus will be macro data, including Wednesday’s US consumer inflation and comments from Federal Reserve officials, as investors look for clues on the outcome of the Fed’s upcoming policy meeting before officials enter the pre-meeting break.
High inflation would increase pressure on the Fed to step up its already aggressive pace of rate hikes.
Also high on the list of investors’ worries is the fact that a growing number of Chinese cities, including commercial hub Shanghai, are adopting new COVID-19 containment measures starting this week to curb new infections after the discovery of a highly portable Omicron subvariant. Read more
By early afternoon, Hong Kong’s benchmark Hang Seng Index (.HSI) fell 1.21 percent to its lowest since June 17, while mainland China’s blue-chip CSI300 (.CSI300) lost 1.3 percent.
Also, rising energy costs in Europe are a major fear as the largest single pipeline carrying Russian natural gas to Germany entered annual maintenance, with flows expected to stop for 10 days.
Investors worry that the shutdown could be extended due to the war in Ukraine, further restricting gas supplies to Europe and sending the euro zone’s struggling economy into recession. Read more
The yield on the benchmark 10-year Treasury note was at 2.9595% after falling back below 3% overnight as investors bought safe-haven government bonds amid a sell-off on Wall Street.
Growth fears also weighed on oil despite concerns about tight supply.
Brent crude futures fell $1.35, or 1.3%, to $105.75 a barrel, while U.S. West Texas Intermediate crude was at $102.64 a barrel, down $1.45, or 1.4%.
Gold was slightly lower. Spot gold traded at $1,728.98 an ounce.
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