World shares gave back earlier gains on Tuesday and Wall Street fell, as investors awaited Big Tech earnings and worries over global growth lingered.
Chinas COVID-19 curbs and fears of aggressive U.S. Federal Reserve tightening continued to damp risk appetite and lifted the dollar to new two-year highs.
MSCI‘s benchmark for global equity markets fell 1.21% to 660.49 by 1447 GMT. Europe’s continent-wide STOXX 600 fell 0.31%, giving back gains seen as earnings from companies including Swiss bank UBS and shipping giant Maersk boosted sentiment. Emerging markets stocks held gains, up 0.26%.
The Dow Jones Industrial Average fell 438.09 points, or 1.29%, to 33,611.37; the S&P 500 lost 73.1 points, or 1.70%, to 4,223.02; and the Nasdaq Composite dropped 347.48 points, or 2.67%, to 12,657.37.
Chinas blue-chip index fell another 0.8% after its worst day in two years on Monday, even as the central bank vowed to step up prudent monetary policy support, particularly for small firms hit by COVID-19.
Three-fourths of Beijings 22 million people lined up for COVID-19 tests as the Chinese capital raced to stamp out a nascent outbreak and avert the city-wide lockdown that debilitated Shanghai for a month.
News that Elon Musk had clinched a deal to buy Twitter for $44 billion in cash buoyed tech stocks on Monday. U.S. shares had rallied in late trading on Monday after trading lower throughout much of the session.
“Outside of that late story it was hard to find a narrative for the strong rebound. Tech stocks will stay front-and-center” as earnings progress this week, Deutsche Bank Research analysts said in a note.
Hong Kongs tech sector rallied 2.9%, boosted by large firms such as Tencent and Alibaba.
The nervousness about Chinas economic slowdown hit Australian shares, with a drop of 2.1% in the benchmark index, hurt particularly by declines in miners.
“There‘s a little bit of a growth scare coming in but in our view there won’t be an immediate slowdown to growth or inflation,” said Mike Kelly, head of global multi-asset at PineBridge Investments.
“We saw that European services PMI surprised to the upside and China, despite moving dreadfully slowly on stimulus, is still moving in the direction to try to speed things up,” he added.
But Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, said if Chinese lockdowns persisted, it would affect Chinas economy significantly, with an impact on global supply chains.
Markets have also been fretting that an aggressive pace of tightening by the U.S. Fed could derail the global economy, which has only just started to recover from the pandemic.
The Fed is expected to raise rates by a half a percentage point at each of its next two meetings. [FEDWATCH]
“It is unrealistic to think that the U.S. can raise interest rates in this way without looking at the real economy,” said Carlo Franchini, head of institutional clients at Banca Ifigest, adding he was also worried about hawkish signals in Europe.
The European Central Banks Martins Kazaks joined a chorus of policymakers urging a swift exit from stimulus measures, suggesting the bank should raise rates soon, and has room for up to three hikes this year.
“A rate hike right now would be madness. … It would just squeeze demand further, reducing consumption and drive the economy into stagflation, which in my view is a much more likely scenario than you might think,” Franchini added.
U.S. treasury yields slipped on Tuesday as uncertainties surrounding the war in Ukraine and the Feds efforts to bring down inflation kept investors cautious about the future despite better-than-exepected economic data.
The yield on benchmark 10-year Treasury notes fell to 2.7319%, while yields on three-month bills to 30-year bonds were all lower in early U.S. trade.
Germanys 10-year yields, the benchmark of the euro bloc, also fell, trading at 0.804%, after falling more than 11 basis points the day before.
In currency markets, the dollar rose against a basket of rivals to fresh two-year highs and was last up 0.45%.
China‘s offshore yuan rose 0.1% to 6.5622 per dollar, staying above Monday’s year-low of 6.6090 after the Peoples Bank of China said it would cut the amount of foreign exchange banks must hold as reserves.
Oil prices steadied after the previous sessions 4% fall as traders weighed concerns over Russian supply and Chinese demand. Brent crude rose 1.13%, while U.S. crude added 1.36% to $99.01 a barrel. [O/R]
Spot gold edged higher as investors sought safe-haven assets. Prices were up 0.43%. Palladium prices rose 2.81% after Mondays steep decline on Chinese demand worries. [GOL/]
