Global stocks recover on fears of growth and inflation
Global stocks recovered on Tuesday in hopes of easing China’s crackdown on technology and COVID-19, but concerns about global price rises and slower growth have created a nervous tone elsewhere in the market.
European stocks have made a positive start in Asia, with the STOXX index of Europe’s 600 largest stocks rising 1.7% and US stock futures, the S&P 500 e-minis, suggesting Wall Street will follow.
Outside of Japan, the broader MSCI index of Asia-Pacific shares rose 2.5%, but the index has fallen 16.8% so far this year.
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“Asia had a good session and, taking the S&P 500 as a guideline, the US is about to grow by about 1% … but the front markets will remain steady on inflation and rate hikes,” said Philip Shaw, chief economist at Invetech in London.
“The headlines directly focus on the high inflationary pressures arising from the Ukraine conflict, or partly the lack of a supply chain that has emerged from the lockdown in China,” he said. Bonds, currencies and commodities showed signs of nervousness as weak retail and manufacturing data in China and disappointing U.S. production data re-emerged in the two largest economies of the world.
An indicator compiled by US Bank Citi that observes whether economic data is better or worse than economists expect has returned to negative territory. The New York Fed’s Empire State Manufacturing Index, released on Monday, showed a sharp decline in May, and shipments have fallen sharply since the onset of the epidemic.
The benchmark 10-year Treasury note yield rose 2.9185% compared to its US close of 2.879% on Monday, while the two-year yield, which traders had expected to have a high Fed funds rate, rose to 2.6195%.
Investors will be looking to central bank policymakers, who spoke on Tuesday, for further signs of a period of rate hikes to tackle inflation.
Speakers include Jerome Powell, Chair of the US Federal Reserve at 1800 GMT, Christine Lagarde, President of the European Central Bank, and John Kanleef, Deputy Governor of the Bank of England.
Futures markets are set to raise prices by 50 basis points in June and July, respectively, and benchmark US interest rates to reach 2.75% by the end of the year. But there is a growing expectation that other central banks will catch up.
Currency and commodity markets were in turmoil, worrying about disappointing economic data by taking profits from investors. The Turkish lira has fallen 2%, its biggest fall since January, due to concerns over the global recession on the currency.
The US dollar index, which tracks the greenback against a basket of currencies, fell 0.35% to 103.8 as investors made more gains by cutting bets on cash outs and US rate hikes. The European single currency rose 0.4% to 0 1.0475 a day, losing 0.96% in one month.
Oil hit a seven-week high on Tuesday in support of ongoing EU pressure to impose sanctions on Russia’s oil imports, and investors focused on higher demand as China relaxed its cowardly lockdown. Brent crude rose $ 115.14, the highest since March 28, while US West Texas Intermediate (WTI) crude rose 63 cents to $ 114.84.
Gold prices have strengthened, as dollar rebounds have supported greenback-priced bullion demand and U.S. Treasury yields have resisted pressure to recover. Spot Gold traded up 0.2% at 8 1,827.44 an ounce.
Bitcoin seems to have stabilized at least temporarily at $ 30,295 after the massive losses in the cryptocurrency market following the fall in prices of several leading so-called stablecoins.
Hopefully China created a positive mood in shares early on Tuesday could ease two key restrictions. Shanghai has achieved the long-awaited milestone of three consecutive days without any new COVID-19 cases outside the quarantine zones, which could be the beginning of lifting the city’s severe lockdown. Meanwhile, Chinese Vice-Premier Liu He was scheduled to speak at a meeting with technology executives on Tuesday to discuss the development of the digital economy, people familiar with the matter told Reuters. The meeting is being closely monitored for clues as to how far Chinese authorities could go to ease a regulatory crackdown in the high-flying technology sector by the end of 2020. Mainland China’s CSI300 index rose 1.25% while Hong Kong’s Hang Seng Index rose 3.27%, as the city’s listed technology companies jumped nearly 6% in hopes of easing Beijing’s crackdown on the sector.
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