Stocks slide, dollar dominates as recession looms

  • STOXX and S&P 500 futures down about 1%
  • Cautious mood ahead of Powell’s Jackson Hole speech
  • Dollar continues to climb, bond yields rise
  • China cuts lending rates, yuan to lowest since September 2020

LONDON, Aug 22 (Reuters) – European stocks fell to month-to-month lows, oil prices fell and the dollar surged on Monday as fears mounted that anti-inflationary interest rate hikes in United States and Europe would weaken the global economy.

Europe’s benchmark STOXX index (.STOXX) fell 1.1% on Monday, touching its lowest since July 28, after Russia’s Gazprom (GAZP.MM) announced it would cut off gas supplies nature of Europe for three days at the end of the year. month.

The tight gas supply has further stoked concerns about the continent’s economic growth following hawkish signals from policymakers at the European Central Bank.

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Authorities in Europe, as in the United States, are raising rates to combat soaring fuel and property prices. Read more

US Federal Reserve Chairman Jerome Powell headlines a crowd of policymakers at a symposium in Jackson Hole, Wyoming, later in the week, with expectations mounting for further rate hikes rather than a pivot towards a more accommodative policy.

“We expect a reminder that further tightening is needed and that there is still a lot of room for improvement on inflation, but no explicit commitment to specific rate hike action for September,” Jan Nevruzi said. , analyst at NatWest Markets.

“For the markets, a bland delivery like this could be disappointing.”

Futures are fully priced for another rise in September, with the only question being whether it will be 50 or 75 basis points. Rates should reach 3.5% to 3.75% by the end of the year.

A Reuters poll of economists predicts the Fed will raise rates by 50 basis points in September, with risks pointing to a higher peak. Read more

One exception to the tightening trend is China, where the central bank slashed some policy rates by 5 to 15 basis points on Monday in a bid to prop up a slowing economy and struggling real estate sector. Read more

Unease over the Chinese economy sent the yuan to its lowest level in 23 months, while putting pressure on equities across the region.

MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) fell another 0.9%, although Chinese blue chips (.CSI300) managed to gain 0.7%.

US markets looked poised to follow the bearish tone, with S&P 500 futures down 1.1% and Nasdaq futures down 1.4%.

The S&P 500 repeatedly failed to clear its 200-day moving average around 4,320 and ended last week down 1.2%.

BofA’s latest survey of investors found most were still bearish, although 88% expected inflation to fall over time, the highest proportion since the financial crisis.

“This helps explain this month’s rotation into equities, technology and stealth, and out of defensives,” said BofA strategist Michael Hartnett. “Compared to history, investors are still long defensive and short cyclical.”

UNSTOPPABLE DOLLAR

The U.S. dollar, meanwhile, continued to ride other currencies, briefly rising above parity against the fragile euro and hitting five-week highs against a basket of peers as policy makers the Fed reiterated their tightening stance.

The euro fell to $0.99945, its lowest level since mid-July, and was down 0.3% on the day, after Russia announced an imminent temporary gas supply shutdown. .

The greenback has risen steadily against its peers in recent months as the most liquid safe haven, jumping 2.3% last week in its best performance since April 2020.

It was last up 0.2% at 108.36 1053 GMT on Monday.

“The USD may rise above 110.00 this week if flash August PMIs for major economies show further slowing in economic growth or contraction in activity,” said Joseph Capurso, head of international economics. to the CBA, referring to the manufacturing sector surveys scheduled for Tuesday. .

Eurozone government bond yields fell slightly on Monday, just off multi-week highs, as inflation fears kept investors focused on expectations of further monetary tightening.

Yields on Germany’s 10-year government bonds fell 3 basis points to 1.99%. Last Friday, it hit its highest since July 21 at 1.242%.

Global bond yields soared last week amid the relentless drumbeat of worrying inflation data, with UK 10-year yields rising the most in five years and Bund yields also soaring on highs. reports showing exorbitant prices.

Minutes from the European Central Bank’s latest policy meeting are due out this week and should look hawkish, as it decided to hike 50 basis points.

The rising dollar was a setback for gold, which extended its slide to $1,735 an ounce as higher interest rate expectations hurt non-performing bullion .

Oil prices were also under pressure, amid concerns over global demand and the strength of the dollar, as well as consultations between the United States and the European Union over Iran’s response to the latest pact proposal. nuclear.

Brent fell 15 cents to $96.56, while U.S. crude fell 12 cents to $90.65 a barrel.

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Reporting by Lawrence White, additional reporting by Wayne Cole; Editing by Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.

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