Pre-market: European stocks rise, US dollar falls as market selling pauses

Men using mobile phones in front of an electronic board showing Japan’s Nikkei index in this file photo.Kim Kyung-Hoon/Reuters

European shares opened higher on Tuesday, rebounding slightly from last week’s 17-month lows as selling paused, but plans to raise interest rates by major central banks and risks of a global recession kept investors wary.

Global stocks are up so far this week, rebounding from last week’s sharp sell-off that saw global stocks fall to their lowest levels since November 2020 as expectations of a tightening central bank policy to combat high inflation prompted investors to dump risky assets.

At 0750 GMT on Monday, the MSCI World Stock Index, which measures stocks in 50 countries, was up 0.5% on the day.

Europe’s STOXX 600 is up 1% and London’s FTSE 100 is up 0.6%.

However, analysts expect the recovery to be short-lived. Timothy Graf, head of macroeconomic strategy for EMEA at State Street Global Markets, said the move to the upside was likely a result of oversold markets in recent weeks and risk mitigation of events, such as the Bank of Japan and Swiss National Bank meetings, had passed.

“I think it’s a pause in what is still a trend where you have this increased potential for slower growth, higher inflation — the potential for stagflation — as a result,” he said.

“Stock markets and earnings prospects for companies I don’t think have really caught on.”

Earlier in the session, RBA Governor Philip Lowe signaled further rate hikes and said inflation was expected to reach 7% by the end of the year.

German industry association BDI lowered its economic forecast for 2022 and said halting Russian gas shipments would make a recession in Germany inevitable.

European bond yields rose, with the German benchmark 10-year yield rising 8 basis points a day at 1.736%.

In the currency markets, the euro was up 0.5% at $1.0561, while the US dollar index was down 0.4% on the day at 104.07.

The US 10-year bond yield was 3.2882%, down from last week’s peak of 3.495% – its highest since 2011 – which came on the same day the Federal Reserve raised interest rates by a whopping 75 basis points.

The Japanese yen, which has fallen sharply in recent months, settled at around $135.19.

The Japanese Prime Minister said that the central bank should maintain its current ultra-loose monetary policy. This makes it a remote area among the other major central banks.

Oil prices rose as investors focused on tight supplies of crude and fuel products. Brent crude futures rose 1.1% to $115.38, while US West Texas Intermediate crude futures rose 1.9% to $111.63.

Gold was little changed at around $1,838 an ounce.

Bitcoin was at around $21,000, having stabilized a bit since dropping to $1,7592.78 at the end of the week. Graf of State Street said cryptocurrencies are increasingly becoming a barometer of risk appetite.


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