Image: Reuters Berita 24 English - On Monday, the world's stock markets shook as a string of weak U.S. data highlighted downside risks f...
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| Image: Reuters |
Berita 24 English - On Monday, the world's stock markets shook as a string of weak U.S. data highlighted downside risks for this week's June payrolls report, even as the commotion over a potential recession continued to fuel a rise in government bonds.
Although early trading was minimal due to U.S. markets being closed, the desire for safety held the U.S. dollar close to 20-year highs.
Cash Treasury markets were closed, but futures continued to rise, suggesting that 10-year rates were holding at 2.88 percent after dropping 61 basis points from their peak in June.
While Japan's Nikkei gained 0.6 percent, MSCI's largest index of Asia-Pacific shares outside of Japan remained unchanged.
As towns in eastern China strengthened COVID-19 bans on Sunday amid new coronavirus clusters, blue-chip Chinese stocks barely changed.
FTSE futures increased by 0.6 percent, while EUROSTOXX 50 futures gained 0.5 percent. However, after barely varying on Friday, both the S&P 500 and Nasdaq futures declined by 0.6 percent.
Every S&P 500 sector, with the exception of energy, experienced negative returns in the first half of the year amid high volatility, according to David J. Kostin, an analyst at Goldman Sachs.
He continued, "The current bear market has been fully driven by valuation as opposed to the outcome of reduced earnings projections.
"However, whether or not the economy enters a recession, we expect consensus profit margin expectations to decline, which will lead to lower EPS revisions."
The beginning of the earnings season is on July 15, and expectations have been revised downward due to high costs and deteriorating statistics.
The closely followed GDP Now prediction from the Atlanta Federal Reserve has dropped to an annualised -2.1 percent for the second quarter, indicating the US was already technically in a recession.
The Friday payrolls data is anticipated to indicate a slowing in job growth to 270,000 in June and a slight slowing in average wages to 5.0 percent.
UPVOTES, THEN DOWNVOTES
Nevertheless, given that the committee decided to raise rates by a huge 75 basis points, the minutes of the Fed's June policy meeting on Wednesday are nearly certain to sound hawkish.
The market has rates at 3.25 to 3.5 percent by the end of the year, with an 85 percent possibility of another increase of 75 basis points this month.
However, analysts at NAB noted that the market has also begun to reflect an increasingly aggressive rate cut profile for the Fed through 2023 and 2024, which is consistent with a rising likelihood of recession.
"Roughly 60bps of Fed reduction are already factored into 2023 prices."
In terms of currencies, investor desire for the safest haven with the most liquid has typically benefited the U.S. dollar, which is currently at close to two-decade highs against a basket of rival currencies at 105.04.
At $1.0432, the euro was unchanged and not far off its most recent five-year low of $1.0349. The euro might gain if the European Central Bank opts for a more aggressive half-point increase in interest rates this month, which is projected to be the first increase in ten years.
Late last week, the Japanese yen received some safe haven flows as well, which caused the dollar to fall from a 24-year high of 137.01 to 135.05 yen.
Non-yielding gold, which was locked at $1,810 an ounce after hitting a six-month low last week, has not fared well due to a strong dollar and rising interest rates. [GOL/]
Industrial metals were also hurt by worries about a worldwide economic slump, with copper falling by 25% from its peak in March and reaching a 17-month low. [MET/L]
Investors evaluated supply and demand concerns as oil prices decreased. The most recent setbacks to production were output limitations in Libya and a planned strike by Norwegian oil and gas workers. [O/R]
U.S. crude fell 30 cents to $108.13 a barrel while Brent dropped 34 cents to $111.29.
