SINGAPORE — On Tuesday, investors were alarmed by the prospect of further tightening by central banks, resurgent COVID outbreaks in China, and Europe’s energy shortages, which caused global equities to fall, oil to decline, and the euro to inch closer to parity with the safe haven dollar.
While Japan’s Nikkei lost 2%, MSCI’s largest index of Asia-Pacific shares outside of Japan dropped 1.3 percent to its lowest level in two years.
U.S. S&P 500 e-minis lost 0.6 percent, Nasdaq futures dropped 0.7 percent, global Euro Stoxx 50 futures lost 0.8 percent, and FTSE futures fell 0.44 percent, all of which indicated that the U.S. and European stock markets would open on a weekday.
Investors’ concerns that an energy crisis will push the region into a recession caused the euro to drop as low as $1.0005 against the US dollar, moving ever-closer to parity for the first time since December 2002.
Global markets are dominated by risk-off sentiment, according to State Street Global Markets macro strategist Yuting Shao.
“The preferred international reserve currency is the dollar. Therefore, because the dollar is the safest currency, people rush to it whenever there is a risk of recession or a rise in volatility, Shao said.
The dollar index, which compares the value of the dollar to six other currencies, increased to 108.44, its highest level since October 2002.
Investors will be looking for hints on the outcome of the Federal Reserve’s upcoming policy meeting before officials enter the pre-meeting blackout period, so the focus for this week will be on macro data, including U.S. consumer inflation on Wednesday, and comments from Federal Reserve Officials.
A high inflation reading would put even more pressure on the Fed to accelerate the rate at which interest rates are raised.
Investors are also concerned about the fact that a growing number of Chinese cities, including the commercial hub Shanghai, are implementing new COVID-19 curbs beginning this week in an effort to prevent the spread of infections following the discovery of a highly contagious Omicron subvariant.
By early afternoon, the mainland China blue chip CSI300 had lost 1.3 percent and Hong Kong’s benchmark Hang Seng Index had dropped 1.21 percent to its lowest level since June 17.
Additionally, the biggest pipeline carrying Russian natural gas to Germany entered annual maintenance, with flows expected to stop for 10 days. This raises serious concerns about the rising cost of energy in Europe.
Investors are concerned that the shutdown may be prolonged as a result of the conflict in Ukraine, further limiting the supply of gas to Europe and tipping the already fragile eurozone economy into recession.
The benchmark 10-year Treasury note yield was 2.9595 percent, having fallen back below 3 percent overnight as investors purchased safe-haven Treasury securities in the midst of a sell-off on Wall Street.
Despite worries about the limited supply, growth concerns were also hurting oil prices.
U.S. West Texas Intermediate crude was at $102.64 per barrel, down $1.45 or 1.4 percent, while Brent crude futures dropped $1.35, or 1.3 percent, to $105.75 per barrel.
Gold dropped a little bit. The going rate for spot gold was $1728.98 per ounce.