World stocks traded mixed while oil prices and bond yields dipped as traders fretted over prospects of further central bank tightening and worries about the health of economies worldwide.
The dollar’s role as the safe-haven go-to currency for investors concerned about the economic outlook has been burnished in recent weeks, with the U.S. currency roaring to two-decade highs against multiple currencies, while the euro sank to within a whisker of parity with the dollar. The pan-European STOXX 600 index lost 0.26% and MSCI’s gauge of stocks across the globe shed 0.54%.
The euro has been particularly vulnerable given the impact of an ongoing spike in natural gas prices on the regional economy and the war in neighbouring Ukraine, and with the European Central Bank behind rivals in raising interest rates. The dollar index fell 0.102%, with the euro up 0.1% to $1.0049, while sterling hit another two-year low and the yen was not far off its weakest in more than two decades.
“There doesn’t seem to be a lot of support for euro at this point,” said Sarah Hewin, senior economist at Standard Chartered. “It does not just relate to gas prices but to what seems to be a split within the ECB over how far they raise rates.” Analysts are tempering their profit estimates as the earnings season starts in earnest this week, with reports from JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co among others.
German investor sentiment tumbled in July, according to a widely watched index published on Tuesday. Meanwhile, economic data including U.S. consumer inflation on Wednesday, and comments from Federal Reserve officials will be in focus later this week as investors look for clues on the outcome of the Fed’s upcoming policy meeting before the pre-meet blackout period.
A high inflation reading would add pressure for the Fed to step up its already aggressive pace of interest rate increases. On Wall Street, the Dow Jones Industrial Average rose 0.08%, while the S&P 500 lost 0.32% and the Nasdaq Composite dropped 0.58%.
MSCI’s broadest index of Asia-Pacific shares outside Japan closed down 1.17% at its lowest level in two years, while Japan’s Nikkei lost 1.77%. Investors are also tracking how a growing number of Chinese cities, including the commercial hub Shanghai, are adopting fresh COVID-19 curbs to rein in new infections after finding a highly transmissible Omicron subvariant.
The surging cost of energy in Europe is also a major fear as the biggest single pipeline carrying Russian natural gas to Germany entered a 10-day annual maintenance period. Investors are concerned the shutdown might be extended because of the war in Ukraine, restricting European gas supply further and tipping the struggling euro zone economy into recession.
The yield on 10-year Treasury notes was down 8.5 basis points to 2.906%, having dropped back below 3% overnight as investors bought safe-haven Treasuries amid a sell-off on Wall Street. Meanwhile, the two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 8.5 basis points at 2.985%.
Growth fears were also weighing on oil, despite concerns about tight supply. Oil prices fell sharply on Tuesday, weighed down by a strong dollar, demand-sapping COVID-19 curbs in top crude importer China and fears of a global economic slowdown.
Gold was steady, with spot prices down 0.2% to $1,730.24 an ounce. Cryotcurrency prices dropped, with Bitcoin last fell 1.01% to $19,748.12.
