2/2 © Reuters. A man wearing a protective mask, in the midst of the outbreak of coronavirus disease (COVID-19), walks past an electronic board showing (top) Nikkei index charts outside a brokerage in Tokyo, Japan , March 10, 2022. REUTERS / Kim Kyung-Hoon
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Per Sujata Rao
LONDON (Reuters) – European stocks opened weaker on Tuesday and Wall Street leaned lower as rising oil prices dampened fears of a further acceleration in global inflation, forcing the Reserve US Federal and other central banks continue to raise interest rates.
Markets ignored signs that China’s economic pain could be easing amid a decline in COVID-19 and focused on inflation forecasts as futures topped $ 123 a barrel, a high two months, and a Fed governor backed further interest rate hikes to tame prices. .
Oil may have more benefits, analysts warn, citing Europe’s decision to cut Russian oil imports, high US summer demand and easing of Chinese blockades at a time of low global supply. crude.
With U.S. inflation hovering more than triple the 2% target, Fed Governor Christopher Waller on Monday advocated 50 basis point rate hikes until there is a “substantial” reduction in inflation.
His comments, which dampened hopes of a pause in the rate hike in September, came hours after data showed German inflation rose in May to a half-century high, with a 8.7%. Price growth was last so high during the 1973/74 oil shocks.
“It all depends on inflation now,” said Francois Savary, CIO of Prime Partners, a wealth manager in Geneva.
He said the stock markets were not out of the woods despite a rise in mid-month lows. This rise was stimulated by the perception that inflation could have peaked and a decline in expectations of a Fed rate hike.
“What happens to the markets depends on whether we see some normalization of inflation in the second half of the year,” Savary said.
German inflation data reinforced the case for a disproportionate rise in European Central Bank rates in July and sent German short-term yields to a record high in more than a decade.
Ten-year Treasury yields, closed on Monday for a public holiday in the United States, rose to 10 bp before being released to quote 6 bp more at 2.81%. While they are still 40 bp below early May highs, yields have fallen to six-week lows recently reached.
Eurozone inflation, which will be released later on Tuesday, is expected to reach a record 7.7%.
MSCI’s global stock index is expected to end in May with a small loss, its first monthly drop this year, while a pan-European index fell 0.4% on Tuesday.
US and Nasdaq index futures fell 0.4% and 0.3%, respectively.
AMBULATED CHINA BORDERS
The mood was more cheerful in Asia before, when China unveiled details of political support, including cash aid for hiring graduates and support for offshore Internet business listings.
China’s official PMI in May also showed that factory activity continued to decline, but at a slower pace than in April.
This allowed Chinese stocks to rise 1.6%, while MSCI’s Asian stock index outside Japan rose 0.7%.
News from China lifted the Australian dollar, although it later gave up on those gains to trade 0.2% lower against the US dollar. The regional consequences of China’s slowdown were also evident in Japan, which saw a sharp drop in factory activity in April.
“The key to Shanghai being able to deliver effective and sustained openness is key,” said Bruce Pang, head of macro and strategic research at China Renaissance Securities Hong Kong, on the flexibility of COVID-related measures.
The rebound in U.S. Treasury yields hit one-month lows and allowed it to rise 0.25%. The euro fell 0.4% against the green dollar to $ 1.0736.