TOKYO (AFP) – Stocks opened mostly higher in Europe early Tuesday and Asian stocks recovered from their worst losses after Wall Street stumbled in a so-called bear market.
Shares in London and Frankfurt rose at the opening but fell slightly later in the morning. Shanghai advanced while Hong Kong closed unchanged. Tokyo and Paris retreated.
On Monday, the S&P 500 lost 3.9%, bringing it below its peak of 21.8%. At the heart of the sell-off lies the US Federal Reserve’s efforts to control inflation by raising interest rates. The Fed strives to control rates and its main method is to raise rates, but this is a blunt tool that can slow down the economy too much, causing a recession.
At first, the downturn on Wall Street frightened investors around the world. Australia’s S&P/ASX 200 Index slipped 3.6% after reopening on Tuesday after Monday’s holiday.
But global markets don’t always move in full swing with New York, and in sharp declines some risk-averse investors see an opportunity to snatch bargains.
France’s CAC 40 index fell 0.5% in early trading to 5,995.37. Germany’s DAX rose 0.3% to 13469.85. Britain’s FTSE 100 Index rose 0.2% to 7222.31. US stocks are also set to rebound, with the Dow Jones Industrial Average future up 0.6%. The future of the S&P 500 was 0.7% higher.
Some economists are speculating that the Federal Reserve may raise its key interest rate by three-quarters of a percentage point when it meets on Wednesday. That’s three times the usual amount and it’s something the Fed hasn’t done since 1994.
“Another day to absorb the recent inflation data in the US, another day closer to the FOMC meeting in June, and global markets, we have proven like those here in Asia that they don’t like where the global economy is right now,” said Robert Carnell, regional president. For Asia Pacific Research at ING, in a report.
Japan’s Nikkei 225 index fell 1.3 percent to 26,629.86. South Korea’s Kospi lost 0.5 percent to 2,492.97 points. Hong Kong’s Hang Seng was little changed, gaining less than one point to reach 21067.99. The Shanghai Composite Index rose 1.0% to 3,288.91.
Aside from concerns about inflation and what central banks are doing to mitigate price hikes, restrictions to curb the spread of COVID-19 in China It also affected market sentiment in Asia.
The shift of central banks, especially the Federal Reserve, towards higher interest rates has reversed the staggering rise in stock prices spurred by massive support for markets after the pandemic in early 2020.
Markets are bracing for bigger-than-usual hikes, as well as some disappointing signals about the economy and corporate earnings, including a record-low preliminary reading of consumer sentiment, which has been strained by higher gasoline prices..
Investors are reconsidering what they are willing to pay for a wide range of stocks, from high-tech aviation companies to industrial conglomerates. The Dow Jones Industrial Average, in conjunction with the S&P 500, fell 2.8% and the Nasdaq Technology Composite Index fell 4.7%.
Last month, the Fed indicated an additional rate It is likely to double the usual amount in the coming months. Consumer prices hit a four-decade high, rising 8.6% in May from a year ago.
Moves by design will slow the economy by making it more expensive to borrow. The risk is that the Fed could cause a recession if it raises interest rates too much or too quickly.
One of the most reliable warning signs of an economic recession was a bang. It includes Treasurys, the debt securities the US government gives to investors who lend money to it. “yield curve” graph It shows how much interest the various Treasurys pay, and is monitored for evidence of how the bond market feels about the long-term outlook for the US economy.
On Tuesday, a closely watched portion of the yield curve lit up briefly for the second time this year. The 2-year Treasury note was trading at 3.39% while the 10-year note was trading at 3.36%.
Typically, long-term Treasurys offer higher returns than short-term ones, resulting in a bullish sloping line graph. This is partly because investors typically demand higher returns to hold their money for longer,
When short-term Treasury yields are higher than long-term Treasury yields, market watchers call it an “inverted yield curve.” When this chart has a downward sloping line, investors get nervous.
Another factor affecting inflation and investor sentiment is the price of oil. It remained near $120 a barrel on Tuesday, up about 60 percent so far this year.
Benchmark US crude rebounded from losses earlier on Tuesday, rising 54 cents to $121.47 a barrel in electronic trading on the New York Mercantile Exchange. It rose 26 cents to $120.93 on Monday.
Brent crude, the international benchmark, rose 62 cents to $122.89 a barrel.
In currency trading, the dollar fell to 134.29 yen, down from 134.46 yen late Monday. The euro traded at $1.0446, up from $1.0409.