London, April 25 (BNA): Traders dumped riskier assets on Monday as relief over Emmanuel Macron’s victory in the French presidential election quickly gave way to renewed concerns about the global economy and the impact of higher interest rates on it.
Asian markets suffered their worst session in more than a month overnight, as fears that Beijing could soon return to lockdown sent Chinese stocks back to their lowest levels in 2020, and with the effects of Wall Street’s 2.5% slump on Friday continuing.
The bombing immediately continued in Europe. The STOXX 600 fell to its lowest since mid-March led by a 2% and 1.9% decline in French and German stocks. The euro fell 0.7% to its lowest level since the first bout of the new Corona virus panic in March 2020, Reuters reported.
“The truth is that the story of the French election is more than yesterday’s Macron victory,” said Jane Foley, strategist at Rabobank FX.
Not only do parliamentary elections continue in France in June, but it also appears that Macron is likely to keep pushing for a ban on Russian oil and gas imports across Europe, which could cause serious economic pain, at least in the short term.
“We had German officials saying last week that if there was an immediate ban on Russian energy, it would lead to a recession in Germany. And if there was a recession in Germany, it would push the rest of Europe down and have spillover effects,” Foley said.
MSCI’s broadest index of global stocks fell 0.7% to a six-week low. Oil fell more than 4% in commodity markets, and concerns about Beijing saw the Chinese yuan slide to its lowest level in one year.
China’s state TV reported that residents were ordered not to leave the Chaoyang District of Beijing on Monday after discovering a few dozen COVID cases over the weekend.
The China-sensitive Australian dollar fell 1.2% while the US dollar rose unhindered to a two-year high, reaching $1.0707 against the euro and 1.2750 against the British pound.
Much of the focus is on how quickly and how far the Federal Reserve will raise US interest rates this year and whether, along with all other global concerns, it will push the global economy into recession.
This week is also full of corporate earnings. 180 companies in the Standard & Poor’s 500 Index are scheduled to report. Big US tech will be most prominent, with Microsoft and Google on Tuesday, Facebook on Wednesday and Apple and Amazon on Thursday.
In Europe, 134 Stoxx 600 reports will also be released, including HSBC, UBS and Santander on Tuesday, Credit Suisse on Wednesday, Barclays on Thursday and NatWest and Spain’s BBVA on Friday.
“I wonder if just meeting expectations will be enough, it looks like we might need more,” said Rob Carnell, ING’s chief economist for Asia, referring to concern about the big tech after a terrible report from Netflix last week.
“It’s guidance about the future that is going to be as important as anything and I think most of these companies will come out and say that everything looks a little bit uncertain, which I don’t think will really help.”
US markets fell on Friday, when the Dow had its worst day since October 2020, and the CBOE volatility index, called Wall Street’s “fear gauge”, jumped higher.
“Concerns about rates and stagnation are now the biggest risks for investors,” said Candice Browning, head of global research at Bank of America, with a particular focus on demand.
“Rising food and gasoline prices as well as the end of major stimulus programs are worrying investors about the ability of low-income consumers to spend.”
Monday’s sell-off in Asia also saw Hong Kong’s Hang Seng fall 3.7% and Shanghai Composite down nearly 5%.
China’s central bank set the midpoint of the yuan’s trading range at an eight-month low, and is seen as an official signal of the currency’s recent decline, selling the yuan to a one-year low of 6.5092 per dollar.
The metal was also deformed. Dalian iron ore fell more than 9%. Copper, the driver of economic growth, fell 1.6% and Brent crude futures fell 4.5% to a two-week low of $101.78 a barrel.
Meanwhile, palm oil jumped 6% and the Indonesian rupiah weakened after a ban on exports from Indonesia added to global food price pressure.
The rising dollar pushed spot gold down 0.8% to $1,913 an ounce. Bitcoin is hovering just under $40,000.
At least the bond markets have stabilized. The benchmark 10-year yield was 2.8738% while the 10-year yield in Germany, the benchmark for Europe, fell 9 basis points to 0.87%. France’s 10-year bond yield was also down about nine basis points at 1.34%.
This week will also see the release of US growth data, European inflation numbers and the Bank of Japan policy meeting, which will be watched for any hints of a response to the sharp drop in the yen, which has lost 10% in about two months. .
HF