Stocks fragile, dollar rises due to growth scare and Fed bets

MSCI’s world stock index rose 0.2% from a six-week low at 1117 GMT, helped by a 0.7% rise in Europe’s STOXX 600 index on strong earnings from companies such as the bank UBS and the shipping group Maersk.

However, China’s blue chip index fell another 0.8% after its worst day in two years on Monday, even as the central bank promised to step up cautious monetary policy support, especially for small businesses affected by Covid-19.

Three-quarters of Beijing’s 22 million people lined up for the Covid-19 test as the Chinese capital ran to eradicate an incipient outbreak and avert the city-wide shutdown that weakened Shanghai for a month.

News that Elon Musk had made a deal to buy Twitter for $ 44 billion in cash strengthened technology stocks. Hong Kong’s technology sector grew by 2.9%, strengthened by large firms such as Tencent and Alibaba.

Nervousness over China’s economic downturn hit Australian equities with a 2.1% drop in the benchmark index, particularly hit by declining miners.

US stock futures fell slightly in European trading, indicating losses of around 0.4% for both Nasdaq NQc1 and the S&P 500 ESv1 after strong technology-driven progress on Monday.

“There’s a slight bit of a growth scare, but in our opinion there will not be an immediate slowdown in growth or inflation,” said Mike Kelly, head of global multi-asset at PineBridge Investments.

“We saw that the PMI for European services surprised upwards, and China is moving, despite moving terribly slowly on stimulus, still in the direction of trying to speed things up,” he added.

But Manishi Raychaudhuri, Asia-Pacific equities strategist at BNP Paribas, said that if Chinese lockdowns continue, it would significantly impact China’s economy with an impact on global supply chains.

Markets have also been concerned that an aggressive pace of tightening by the US Federal Reserve could derail the global economy, which has only just begun to recover from the pandemic.

The Fed is expected to raise interest rates by half a percentage point at each of its next two meetings.

“It is unrealistic to think that the US can raise interest rates this way without looking at the real economy,” said Carlo Franchini, head of institutional clients at Banca Ifigest, adding that he was also concerned about hawkish signals in Europe.

The European Central Bank’s Martin Kazak joined a chorus of policy makers calling for a quick exit from stimulus measures, suggesting that the bank should soon raise interest rates and have room for up to three increases this year.

“A rate hike right now would be insane … it would just push demand further, reduce consumption and drive the economy into stagflation, which in my opinion is a much more likely scenario than you might think,” Franchini added.

In the foreign exchange markets, the dollar was in a good mood on the demand for safe haven. The dollar index against a basket of rivals rose to new two-year highs and was last up 0.2% to 101.8.

China’s offshore yuan CNH = rose 0.1% to $ 6.5622 per dollar, staying above Monday’s low of 6.6090, after the People’s Bank of China said it would reduce the amount of currency that banks must hold as reserves.

Benchmark US 10-year interest rates US10YT = RR fell 2 basis points to 2.797%, further withdrawing from the high-yielding Fed-induced highs last week as China’s lockdown and growth fears sent investors into security for US bonds.

Germany’s 10-year interest rate, the euro bloc’s benchmark, also fell by around 1 basis point to 0.835% after falling more than 11 basis points the day before.

Oil prices stabilized after falling by 4% in the previous session. Concerns about China’s fuel demand were alleviated by the central bank’s pledge to support an economy plagued by Covid-19 restrictions.

Brent LCOc1 Crude oil rose 0.7% to $ 103.01 per barrel, while U.S. crude oil CLc1 added 0.5% to $ 99.01 per. barrel.

Spot gold rose 0.5% to $ 1,906.5 per share. ounce.

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