European and Asian stocks fell on Tuesday as traders anticipated higher interest rates from the European Central Bank and Covid-19 lockdowns in China added to fears for global economic growth.
The Stoxx Europe 600 fell 0.3% in early trades after two days of gains after U.S. retail sales data indicated rate hikes by the Federal Reserve had yet to affect the consumers’ willingness to spend.
Hong Kong’s Hang Seng index lost as much as 1.4% and China’s CSI 300 fell 1.3%. The Japanese Topix gained 0.5%.
The ECB is expected to raise its main deposit rate on Thursday, currently at minus 0.5%, for the first time since 2011, and confirm its intention to end an eight-year period of negative interest rates by September.
Markets are also pricing in a 0.75 percentage point hike by the US central bank next week, which would take its main policy rate to a range of 2.25% to 2.5%.
Global stocks have fallen around 20% this year as investors debate central banks’ ability to rein in soaring inflation without pushing economies into contraction, while the quarterly corporate earnings season sparked worries about a possible recession.
Wall Street banks JPMorgan and Morgan Stanley missed analysts’ earnings forecasts last week. On Monday, Goldman Sachs warned it would slow hiring while Bloomberg reported Apple was poised to do the same.
“We are going to see significant downward revisions to earnings forecasts and there is no monetary policy support to help the markets, so it is difficult to be optimistic,” said Luca Paolini, strategist Chief at Pictet Asset Management.
“The only thing that could save the situation is an improvement in China.”
In China, as many as 41 cities are now closed or under district-level control, Japanese bank Nomura said, as the country continues to pursue its zero-Covid policy while working to develop an effective COVID-19 vaccine. mRNA.
The restrictions cover 264 million people in regions that account for around 18.7% of the country’s economic activity, a deterioration from a week ago, when just 31 cities were under such restrictions.
China’s economy grew just 0.4% in the quarter to June year on year, largely missing analysts’ forecasts, although the weak performance fueled speculation that Beijing would launch stimulus measures .
In debt markets, the yield on the benchmark 10-year US Treasury added 0.01 percentage point to 2.97%. The yield on the equivalent German Bund fell 0.04 percentage point to 1.17% as concerns over the euro zone economy boosted demand for lower risk assets. Bond yields move inversely to prices.
Last week, Russia closed its main gas pipeline to Germany for repairs. Fears that state-controlled gas exporter Gazprom may not be able to resume deliveries via Nord Stream 1 when the scheduled maintenance period ends in two days has prompted EU governments to plan for an energy shock this winter which would deal a blow to businesses and aggravate the cost of living crisis.
The euro, which fell below $1 last week, gained 0.3 percent to $1.017 on Tuesday as an early ECB rate hike set a floor under the common currency.
The dollar index, which measures the U.S. currency against six others, slipped 0.2% to trade just below a 20-year high.