Risk aversion and dollar benefits persist – 07/12/2022 at 08:40


Europe is expected to decline

PARIS (Reuters) – Major European stock markets are expected to extend their decline on Tuesday, as investor sentiment remains dented by the return of health restrictions in China, the risk of gas shortages in Europe and the prospect of a slight rate hike. Interest rate hikes around the world, all fueling the fear of recession.

Index futures point to a decrease of 1% for the CAC 40 in Paris, 0.68% for the Dax in Frankfurt, 0.53% for the FTSE 100 in London and 0.72% for the Euro Stoxx 50.

The Paris market was already down 0.61% on Monday and the pan-European Stoxx 600 index 0.5% after health restrictions were announced in several major Chinese cities in the face of signs of a resurgence of the COVID-19 epidemic.

Three days before the release of China’s second-quarter GDP figures, the prospect of a further slowdown in economic activity has sent the MSCI Asia-Pacific excluding Japan index to its lowest level in two years.

In European and North American markets, investors’ cautious reaction is amplified by nervousness related to the expected monthly consumer price numbers in the US, due on Wednesday which could revive speculation for a Fed rate hike.

In the Eurozone, fears of gas shortages in the coming months are weighing on the trend following the shutdown of the Nord Stream 1 gas pipeline, even if it is due to normal maintenance for the time being.

The values ​​to be followed:

On Wall Street

The New York Stock Exchange closed lower on Monday as the lack of catalyst for investors prompted caution ahead of the release of consumer price data and the start of this week’s earnings season.

The Dow Jones fell 0.52%, or 164.31 points, to 3,1173.84 points, the Standard & Poor’s 500 lost 44.95 points, or 1.15%, to 3,854.43 and the Nasdaq Composite fell 262.71 points (-2.26%) to 11,372.60.

The Standard & Poor’s Banking Sector Index fell 1% two days before the first publication of the quarterly accounts of major US banks.

Twitter also fell 11.3% after Elon Musk abandoned its plan to buy the social network for $44 billion (€43 billion).

Index futures so far are pointing to a lower open of about 0.6%.

In Asia

On the Tokyo Stock Exchange, the Nikkei ended the day 1.77% lower as news of a sharp rise in the number of COVID-19 cases in Japan reignited fears of a recession in the global archipelago.

In China, the Shanghai SSE Composite Index lost 0.85% and the CSI 300 Index lost 0.9%. In Hong Kong, the Hang Seng Index (-1.33%) fell to its lowest level since June 17, and was punished with skepticism over the outcome of ongoing Sino-US discussions over listing Chinese companies on Wall Street.

the changes

In the currency market, the euro is trading within parts of parity with the dollar, at 1.002 after dropping to 1.0006, its lowest level since December 2002.

The “dollar index”, which measures the fluctuations of the US currency against a basket of world currencies, rose 0.37%, the highest level since October 2002.

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US bond yields are still in a downtrend, continuing the decline spurred on Monday by a general rise in risk aversion.

Thus, the 10 years, which have been in three consecutive sessions of increase, appear at 2.9706%, nearly 15 basis points below Friday’s peak (3.103%).

The two- to 10-year portion of the US yield curve also remains inverted, an anomaly that typically reflects recession expectations.

In Europe, the German 10-Year Index fell very slightly in early trading to 1.245%. The market will be watching at 09:00 GMT the ZEW Investor Sentiment Index in Germany, which is expected to drop sharply.

oil

The oil market is declining, due to renewed health restrictions linked to COVID-19 in China, which is calling into question the outlook for global demand for the coming months.

Brent fell 1.68% to $105.30 a barrel, and US light sweet crude (WTI) fell 1.93% to $102.08.

On the supply side, investors are not expecting progress from Joe Biden’s Middle East tour this week because spare production capacity in the region is limited.

(Written by Mark Angrand)

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