Stocks go down after attacks in Ukraine and worries about interest rates cause a rush to safety.
LONDON: Global stocks went down on Monday after a series of explosions in the capital of Ukraine and renewed worries about the economy caused investors to put their money into safe assets like the dollar and bonds.
Any hope that the Federal Reserve will change its stance on monetary policy to be more lenient was put to rest on Friday, when data showed that unemployment fell in September. This shows that the job market is not being hurt by red-hot inflation.
The dollar stayed the same when compared to a group of other currencies, while a number of market-based measures of investor anxiety about risk showed another rise.
At least five people were killed when Russian missiles hit Ukraine during rush hour on Monday. The attacks were likely retaliation for President Vladimir Putin calling an explosion on the bridge to Crimea a terrorist attack.
Related: Russia attacks Ukraine with more missiles after an attack on a bridge, which makes the dollar go up.
“I had wondered if the markets were looking at what was going on in Ukraine and thinking that this was a sign that the world was coming to an end. This was the first thing that people thought when the Ukrainian Army made progress in the summer. This reaction isn’t happening anymore, and it’s clear that people don’t see this as the end of anything, “Kit Juckes, who is in charge of currency strategy at Societe Generale (OTC:SCGLY), said.
“We have geopolitical tensions, and we’re still headed toward tighter monetary policy in the U.S.,” he said. “The worry is that by the time they’re done tightening, they’ll have tightened too much, leaving the economy looking pretty weak.”
In early trading in Europe, the MSCI All-World Index dropped 0.5%, making it the fourth day in a row that it has gone down. The pan-European STOXX 600 fell 0.5% to its lowest level in a week, while Germany’s DAX fell 0.1% and the FTSE 100 fell 0.7%, making it one of the worst performing indices.
Futures for the S&P 500 fell 0.5%, and those for the Nasdaq fell 0.6%.
Wall Street fell on Friday after a good report on payrolls made it more likely that interest rates would go up again by a lot.
Futures show that there is a more than 80% chance that interest rates will go up by 75 basis points next month. The European Central Bank (ECB) is expected to do the same, and the Bank of England is expected to raise rates by at least 100 basis points.
CORE METHOD
Consumer inflation in the U.S. is expected to have slowed to 8.1% per year, but the core measure is expected to have gone up from 6.3% to 6.5%. Thursday is when the U.S. CPI report is due.
Bruce Kasman, head of economic research at JPMorgan (NYSE:JPM), said, “We are in the middle of the largest and most synchronised tightening of global monetary policy in more than 30 years.” He expects all three central banks to raise rates by 75 basis points.
He said, “The September CPI report should show a drop in prices for goods, which is likely a sign of a wider drop in core inflation.” ” “But the Fed won’t pay attention to a whisper that inflation is slowing as long as labour markets scream that jobs are scarce.”
This week, we’ll also get the minutes from the Fed’s last policy meeting. Given how many policymakers raised their dot plot forecasts for rates, the minutes are likely to sound like they want rates to go up.
Related: Ukraine is seeking to revive its economy by establishing defiant small business
Even though U.S. inflation and the Fed’s response to it are still at the top of investors’ minds, the rise in risk aversion helped euro zone government bonds.
The benchmark German 10-year Bund yield fell 3 basis points to 2.162%, while the more volatile 2-year Schatz yield fell 8 basis points to 1.787%.
A 2% drop in Chinese blue-chip stocks after a survey showed the first drop in service activity in four months was another sign to be careful.
EARNINGS TEST
On Friday, JPMorgan, Citi, Wells Fargo (NYSE:WFC), and Morgan Stanley (NYSE:MS) all start to report their earnings.
Analysts at Goldman Sachs (NYSE:GS) said in a note, “Consensus expects 3% year-over-year EPS growth, 13% sales growth, and a 75 bps margin contraction to 11.8%.” “Without Energy, we expect EPS to drop by 3% and margins to shrink by 132 bps.”
“We expect fewer positive surprises in the third quarter than in the first half of 2022, and negative changes to the consensus estimates for the fourth quarter and the year 2023.”
The dollar index went up 0.3% to 113.14, while the euro went down 0.4% to $0.9697 and the yen stayed the same at 145.45, just a hair away from the 24-year high of 145.90 that caused Japan to step in. [USD/]
Sterling dropped by 0.3% to $1.10625 after the Bank of England made an unexpected decision to support the gilt market before an emergency bond-buying programme ended on Friday. [nL8N31B0VI]
Oil dropped for the first time in a week as investors cashed in on last week’s 11% rise after OPEC+ reached a deal to cut production. [O/R]
Brent fell 0.7% to $97.26 per barrel, while U.S. crude fell 0.6% to $92.08 per barrel.
