Stocks and oil prices fell on Tuesday as the euro approached parity with the US dollar as markets were trapped by fears of a global recession.
The European stock index Stoxx 600 lost 0.6 percent, making it 15 percent lower for this year. A broad Asian equity MSCI index hit a new two-year low. Futures markets indicated that the Wall Street S&P 500 would fall 0.7% in early New York operations.
Meanwhile, the euro was about to hit $ 1 for the first time since 2002. The dollar index, which measures the U.S. currency against six others and is heavily weighted in euros, rose 0.4 percent to stay at its strongest level for two decades.
Brent crude, the benchmark for oil, fell 4.8% to just over $ 102 a barrel.
Investors have been frightened by business and consumer surveys indicating an imminent slowdown in the United States, with the central bank’s ability to support markets slowed by rampant inflation. Data to be released on Wednesday is expected to show that U.S. consumer price inflation hit a new four-decade high of 8.8% last month.
“The 1970s show that it’s perfectly possible to have a recession and still uncomfortable inflation,” said Nicholas Colas, co-founder of DataTrek Research. “The way the economic data is developing this year, it seems that we are now in a similar situation.”
Fears of the recession are even more intense in Europe, where governments are caught up in concerns that Moscow will cut off gas supplies, exacerbating an energy shock and the cost-of-living crisis.
Analysts expect the US Federal Reserve to raise interest rates to 0.75 percentage points at its July meeting, from the current range of 1.5% to 1.75%. Futures markets point to a US benchmark interest rate of just under 3.5% by early 2023. By comparison, the European Central Bank is expected to tighten monetary policy more slowly.
The FTSE All-World index of developed and emerging market shares has fallen more than 20% this year, as higher interest rates raise borrowing costs and drag up stock market valuations. Investors now see an economic slowdown that will affect corporate profits.
“We see the bear market in two phases. The first part is based on interest rates and the second on earnings,” said Trevor Greetham, head of multi-assets at Royal London Asset Management. “There will be a recession and this will cause a lot of weakness in the gains that have not yet started.”
According to FactSet, the consensus of analysts’ forecasts suggests that companies listed on the S&P 500 index will report year-on-year earnings growth of 4.3 percent for the second quarter of this year.
“The current weaker economic pace combined with rising costs will generate more concern in CEO announcements regarding pricing power and corporate margins,” said Michele Morganti, Generali’s senior capital strategist Investments.
Government bonds, which had rebounded on Monday, continued to consolidate as traders sought assets traditionally seen as paradises.
The yield on the 10-year U.S. Treasury bill, which moves inversely to its price and sustains debt costs around the world, fell 0.08 percentage points to 2.92 percent. The two-year Treasury yield fell 0.07 percentage points to 3%, trading above 10 years in the so-called inverted yield curve pattern that has historically predicted recession.
Futures linked to the FTT, the European wholesale price of gas, were 1.4 percent higher at 171.5 euros per megawatt-hour, and remained more than double the level in early June.