Shares fell and the dollar held close to highs in the diluted trade during holidays on Monday, as concerns about economic growth lasted ahead of an expected US rate hike this week, and after data showed that Covid-19 lockdowns slowed China’s manufacturing activity.
MSCI’s benchmark for global equities fell 0.4% at 1148 GMT as European and Asian equities fell after Wall Street’s steep losses on Friday in the wake of a disappointing Amazon update.
Data signaling a steeper decline in China’s manufacturing activity dampened risk appetite, although the closure of holidays in London and most Asian markets reduced volumes.
STOXX 600 fell 1.2%, recovering from heavy losses earlier in the session following a sudden crash. The pan-European index fell as much as 3% around 1 p.m. 0800 GMT, and Stockholm’s benchmark index fell 8% in what brokers said was a “flash crash” or an erroneous trade. Japan’s Nikkei fell 0.1% and South Korea’s KOSPI fell 0.3%, while US stock futures tried to stabilize with the Nasdaq and S&P 500 e-minis trading between flat and down 0.1%.
Factory activity in China fell at a slower pace in April as widespread Covid-19 lockdowns halted industrial production and disrupted supply chains in the world’s second-largest economy.
A survey on Monday also showed that growth in euro area production stalled in April as factories struggled to procure raw materials, while demand took a hit from steep price increases and concerns about the economic outlook.
It created fears of a sharp slowdown in the second quarter, which will weigh on global growth, as central banks around the world begin to tighten policies aggressively to combat inflationary pressures, exacerbated this year by the war in Ukraine.
Investors expect the Fed to raise interest rates by 50 basis points on Wednesday, although there was uncertainty about how high-profile President Jerome Powell will sound in the comments following the decision.
“A 50bp rise in the Fed Fund target rate and the announcement of the start of quantitative easing seems to be a done deal,” said UniCredit economists led by Tullia Bucco.
“Still, market participants are unsure whether this big leap forward in the Fed’s policy tightening process will be accompanied by pigeon-like, neutral or hawkish statements from Powell,” they added in a note.
About 250 basis points of interest rate hikes have already been priced in by the money markets by the end of this year, which UniCredit says reduces the possibility of hawkish surprises this week.
On Friday, Wall Street suffered its worst fall since 2020, when Amazon fell on a dismal quarterly report, and as the biggest rise in monthly inflation since 2005 scared investors already worried about rising interest rates.
US government interest rates stayed slightly below their peaks last week. The benchmark 10-year interest rate fell 1.3 basis points to 2.922%, after reaching as high as 2.981% on April 20th.
German Bund interest rates fell, but remained within the range of their highest since June 2015, as investors prepared for the Fed, but also for the Bank of England’s political meeting on Thursday, which is likely to raise interest rates by 25 basis points.
Germany’s 10-year interest rate, benchmark for the euro area, fell 1.2 bps to 0.924%.
The dollar rose back to its highest level in nearly two decades after losses on Friday, and the euro fell to $ 1.05 as investors prepared for the Fed’s likely rate hike.
The dollar index was last at 103.4, up 0.1% on the day. The euro fell 0.2% to $ 1.05.
“We considered Friday’s softness to stem from profit-taking and rebalancing at the turn of the month … We continue to target the November 2002 high of close to 107,” said Win Thin, currency strategist at Brown Brothers Harriman.
Oil prices fell as concerns about weak economic growth in Covid-affected China continued, offsetting risks to supply stress from a potential European ban on Russian crude oil. OR
The European Union is leaning towards a ban on Russian oil imports before the end of the year, two EU diplomats said after talks between the European Commission and EU member states this weekend.
Brent oil fell 2.6% to $ 104.3 per barrel. barrel, and U.S. crude oil lost 3.1% to $ 101.38.
Gold prices fell as rising US interest rates pushed up demand for zero-yield barriers.
Spot gold fell 1.1% to $ 1,875.7 per share. ounce.