On Monday, stock markets diverged and oil prices fell as traders focused on disappointing Chinese economic data and the prospect of a US interest rate hike, which might cool inflation but stifle growth.
Equities got off to a shaky start in May as Wall Street ended a difficult April with a steep drop on Friday following poor reports from tech behemoth Amazon.
“The markets remain skittish regarding an expected aggressive Fed monetary policy tightening cycle as the Central Bank is set to hike rates this week,” said analysts at Charles Schwab investment firm.
“Moreover, global sentiment continues to be hampered by the ongoing war in Ukraine, the recent spike in interest rates, the rallying US dollar, and slowing economic activity in China,” they said.
Early trades on Wall Street sawsawed.
In midday trade, eurozone markets were substantially lower, with Paris down over 2% and Frankfurt down 1.3 percent. For a bank holiday, London was closed.
Tokyo, Seoul, Mumbai, Manila, Sydney, and Wellington all finished in the bottom half of the rankings. The markets in Hong Kong and mainland China, as well as several other Asian markets, were closed.
Chinese manufacturing production declined at its sharpest rate since the outbreak began last month, according to data released over the weekend, as the authorities imposed Covid-19 lockdowns in the world’s second-largest economy’s major cities.
While Shanghai’s commercial hub remains closed, Beijing has reinforced virus controls in the capital, forcing visitors to pass clear Covid tests before entering public spaces.
This followed gloomy economic data in Europe on Friday showing that Russia’s invasion of Ukraine was weighing on growth.
The struggles in China, the world’s biggest crude importer, led to a drop in prices of the commodity on demand concerns, offsetting worries about tighter supply as the EU eyes a ban on Russian oil over its invasion of Ukraine.
Brent North Sea crude, the benchmark international contract, lost more than 3% to $103.71.
According to insiders, the European Commission is preparing a sanctions text that may be presented to the 27 member states as early as Wednesday, with the ban being phased in over six to eight months to allow countries to diversify their supply.
– A rate hike looms – Investors are also looking ahead to the US Federal Reserve’s two-day policy meeting, which begins on Tuesday and is likely to see the central bank raise borrowing costs by half a point, the biggest since 2000, in an effort to cool skyrocketing consumer prices.
Some analysts are predicting the Fed could even announce a three-quarter-point increase at some point as it battles more than 40-year-high inflation.
With some commentators warning rates could go as high as three percent, there are also worries the Fed could be too heavy-handed and tip the US economy into recession.
“The Fed must make up for lost time and act quick and strongly as it faces inflation which keeps surprising as it rises,” said Franck Dixmier, head of fixed income at Allianz Global Investors.
“The challenge in executing the normalisation of its monetaryt policy is to ensure a soft landing of the US economy … while maintaining a dynamic labour market and above all avoiding triggering a recession,” he said.
– Key figures at around 1400 GMT –
New York – Dow: UP 0.2 percent at 33,045.26 points
Frankfurt – DAX: DOWN 0.8 percent at 13,987.69
Paris – CAC 40: DOWN 1.5 percent at 6,438.19
EURO STOXX 50: DOWN 1.6 percent at 3,743.16
London – FTSE 100: Closed for a holiday
Tokyo – Nikkei 225: DOWN 0.1 percent at 26,818.53 (close)
Hong Kong – Hang Seng Index: Closed for a holiday
Shanghai – Composite: Closed for a holiday
Euro/dollar: DOWN at $1.0530 from $1.0550 on Friday
Pound/dollar: DOWN at $1.2545 from $1.2578
Euro/pound: UP at 83.91 pence from 83.86 pence
Dollar/yen: UP at 130.03 yen from 129.89 yen
West Texas Intermediate: DOWN 3.5 percent at $101.04 per barrel
Brent North Sea crude: DOWN 3.2 percent at $103.71 per barrel
