Stocks and commodity prices fall below hawkish Fed, China worries

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WASHINGTON/LONDON — Traders dumped riskier assets on Monday as relief over Emmanuel Macron’s victory in the French presidential election quickly gave way to renewed worries about rising global interest rates and China’s booming economy.

Wall Street extended last week’s strong selloff as fears over China’s COVID-19 outbreaks spooked investors already worried about accelerating U.S. interest rate hikes hampering economic growth .

Asian markets had their worst day in more than a month overnight on fears that Beijing was on the verge of returning to a COVID-19 lockdown, and as Wall Street’s 2.5% tumble on Friday persisted in US futures markets.

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Despite relief that Macron passed far-right challenger Marine Le Pen on Sunday, Europe’s STOXX 600 index fell back to its mid-March lows, weighed down by declines of 1.5% and 1.0 % of French and German stocks, respectively.

The Dow Jones Industrial Average fell 403.29 points, or 1.19%, to 33,408.11, the S&P 500 lost 53.39 points, or 1.25%, to 4,218.39 and the Nasdaq Composite fell 55.13 points, or 0.43%, to 12,784.17 at 11:09 a.m. EST (1509 GMT)

“The rebound in equities from the first-quarter correction has hit a wall of rising long-term interest rates,” Morgan Stanley chief investment officer Lisa Shalett said in a note.

“As the Fed talks about a faster and bigger than expected balance sheet reduction, real yields are closing in on zero from deep negative territory. With the nominal 10-year US Treasury rate hitting 2.9%, the equity risk premium has fallen.

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The MSCI benchmark for global equity markets fell 1.42%. Emerging market stocks fell 2.83%.

The euro slipped 0.93% to its lowest level since the initial COVID panic of March 2020.

“The reality is that there is more to the story of the French elections than Macron’s victory yesterday,” said Rabobank FX strategist Jane Foley.

Not only are legislative elections still to be held in France in June, but Macron also seems likely to keep up the pressure for a Europe-wide ban on Russian oil and gas imports, which would cause serious economic hardship, at least. short term. .

“German officials said last week that if there was an immediate embargo on Russian energy, it would cause a recession in Germany. And if there was a recession in Germany, it would cause the rest of Europe down and would have repercussions for the rest of the world,” Foley said.

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Beijing’s worries saw the yuan skid to its lowest level in a year.

Chinese state television reported that residents were ordered not to leave Beijing’s Chaoyang district after a few dozen COVID cases were detected over the weekend.

The dollar index rose 0.702%. The US dollar climbed smoothly to a two-year high and touched a high of $1.0695 against the euro.

The focus is on how quickly and how much the Federal Reserve will raise U.S. interest rates this year and whether that, along with all the other current global stresses, will help tip the global economy into recession.

This week is also busy for corporate earnings. Nearly 180 companies in the S&P 500 index are due to report. Big American tech will be in the spotlight, with Microsoft and Google on Tuesday, Facebook on Wednesday, and Apple and Amazon on Thursday.

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In Europe, 134 of the Stoxx 600 will also report results, including banks 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, I feel like we may need a little more,” said Rob Carnell, ING’s Asia chief economist, referring to concerns about big tech following a disastrous report from Netflix last week.

FEAR FACTOR

Shares of Twitter rose amid reports the company was close to accepting Tesla owner Elon Musk’s offer to buy the microblogging site.

Friday saw the Dow Jones suffer its worst day since October 2020 and the CBOE Volatility Index, dubbed Wall Street’s “fear gauge”, continued to climb Monday. It has now increased by 50% in recent days.

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Monday’s sell-off in Asia also saw Hong Kong’s Hang Seng fall 3.7% and the Shanghai Composite Index slip more than 5%.

China’s central bank had set the midpoint of the yuan’s trading band at an eight-month low, seen as an official nod to the currency’s recent slide, and the yuan sold off further, to a one-year low of 6.5092 to the dollar. .

The rising dollar pushed spot gold down 1.8%. Palladium prices fell nearly 13% on concerns over a hit to Chinese demand.

Elsewhere in commodities, oil prices fell with Brent down 5.19% and US crude down 5.3%.

Yields on US Treasuries and Eurozone bonds also declined.

Money markets are now pricing in a 1 percentage point rise in U.S. interest rates at the next two Federal Reserve meetings and at least 2.5 points for the full year, which would be the one of the highest annual increases ever recorded.

This week will also see the release of US growth data, European inflation figures and a policy meeting from the Bank of Japan, which will be watched for any hint of response to a sharp fall in the yen, which has lost 10% in about two months. .

(Additional reporting by Tom Westbrook in Singapore; Editing by Bernadette Baum, Catherine Evans and Mark Heinrich)

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