(Bloomberg) — Stocks fell Monday as concern about the global economy and the path of rates sapped the strength of a blistering second-quarter rally.
Stocks in Europe and Asia fell on Monday as investors worried about the impact of rising inflation on corporate profits.
In Europe, the pan-European STOXX 600 index fell 0.6%, led by declines in the technology and consumer discretionary sectors. In Asia, the Shanghai Composite index fell 0.4%, while the Hang Seng index in Hong Kong fell 0.7%.
The declines come as investors continue to monitor the Federal Reserve’s efforts to combat inflation. The central bank has raised interest rates by 75 basis points so far this year and is expected to continue raising rates in an effort to bring inflation under control.
However, some investors are concerned that the Fed’s tightening cycle could lead to a recession. This concern has weighed on stock markets in recent weeks, and it could continue to do so in the coming months.
In the United States, stock and bond markets are closed on Monday for a holiday. Futures contracts on the S&P 500 and Nasdaq 100 were little changed ahead of the open.
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Here are some of the factors that are weighing on global markets:
- Rising inflation
- The Federal Reserve’s tightening cycle
- Concerns about a recession
Investors will be closely watching economic data and central bank announcements in the coming weeks for clues about the direction of the markets.
Fed Chair Powell to Speak to Congress, UK Hikes Rates
Investors will be watching closely as Fed Chair Jerome Powell testifies to Congress on Wednesday. Powell is expected to provide more details about the Fed’s plans to combat inflation.
In addition to Powell, other Fed officials are also scheduled to speak this week. This includes James Bullard, the president of the Federal Reserve Bank of St. Louis, and presidents of the New York and Chicago Fed.
The Fed’s decision to hold rates last week was a surprise to many. However, the central bank did signal that it is still committed to raising rates in an effort to bring inflation under control.
Markets are still pricing in a lower path of interest rates than the Fed’s dot plot. This suggests that investors believe the Fed will eventually pause its rate hikes.
However, it is unclear how long rates will stay high. This will depend on how the economy performs and how inflation evolves.
In the UK, short-term borrowing costs have climbed to 5% for the first time since the global financial crisis. This is due to concerns about the troubling inflation outlook.
The Bank of England has raised rates five times since December in an effort to combat inflation. However, inflation is still running at a 40-year high.
The UK’s central bank is expected to raise rates again in August. However, it is unclear how high rates will need to go before inflation starts to come down.
The global economy is facing a number of challenges, including high inflation and rising interest rates. It is unclear how these challenges will play out in the coming months. However, investors will be closely watching the Fed and other central banks for clues about the direction of the economy.
Chinese tech stocks tumbled on Monday, with Alibaba Group Holding Ltd, JD.com Inc. and Baidu Inc. all tumbling more than 3% to drag the Hang Seng Tech index as much as 2.9% lower.
Investors had been primed for China’s cabinet to possibly announce fresh stimulus after a meeting on Friday, but it stopped short of releasing any specific proposals. The lack of tangible evidence for support adds to worries over a slowing economy, unnerving investors who had bid up Chinese equities last week in the hope of a sweeping package.
“The market was expecting some sort of stimulus, but the government didn’t announce anything,” said Zhang Yu, an analyst at Guotai Junan Securities. “This is a disappointment for investors.”
The Hang Seng Tech index has lost more than 20% in the past year, as investors have become increasingly concerned about the slowing Chinese economy and the government’s crackdown on tech companies.
Key events this week that could impact markets include:
- Tuesday: China loan prime rates, US housing starts, Federal Reserve Bank of St. Louis President James Bullard speaks, New York Fed President John Williams speaks
- Wednesday: Federal Reserve Chair Jerome Powell delivers semi-annual congressional testimony before the House Financial Services Committee, Federal Reserve Bank of Chicago President Austan Goolsbee speaks
- Thursday: Eurozone consumer confidence, rate decisions in UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, US Conference Board leading index, initial jobless claims, current account, existing home sales, Federal Reserve Chair Jerome Powell delivers semi-annual testimony to Congress before the Senate Banking Committee, Cleveland Fed’s Loretta Mester speaks
- Friday: Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Japan CPI, UK S&P Global / CIPS UK Manufacturing PMI, US S&P Global Manufacturing PMI, Federal Reserve Bank of St. Louis President James Bullard speaks
Investors will be closely watching these events for clues about the direction of the global economy and the pace of monetary policy tightening.
Markets Mixed as Investors Weigh Rising Inflation
Global markets were mixed on Wednesday as investors weighed rising inflation against the potential for central banks to raise interest rates too quickly.
In Europe, the Stoxx Europe 600 fell 0.7% as of 1:30 p.m. London time. The index has fallen for four straight days, its longest losing streak since March.
In the United States, S&P 500 futures fell 0.1%, while Nasdaq 100 futures fell 0.1%. Futures on the Dow Jones Industrial Average fell 0.1%.
The MSCI Asia Pacific Index fell 0.7%, led by declines in Hong Kong and China. The MSCI Emerging Markets Index fell 0.7%, with South Korea and Taiwan leading the losses.
The Bloomberg Dollar Spot Index rose 0.1%, while the euro fell 0.1% to $1.0925. The Japanese yen was little changed at 141.81 per dollar, while the offshore yuan fell 0.5% to 7.1630 per dollar. The British pound was little changed at $1.2810.
Bitcoin rose 0.2% to $26,523.5, while ether was little changed at $1,730.2.
Bond yields rose in the United States, with the yield on the 10-year Treasury note rising to 3.02% from 2.99%.
Commodity prices were mixed, with Brent crude oil rising 0.2% to $76.77 a barrel and spot gold falling 0.3% to $1,951.85 an ounce.
Investors will be watching for more data on inflation and economic growth this week. The Federal Reserve is also scheduled to release minutes from its latest meeting on Wednesday.
How do you identify a stock rally?
Various technical indications can confirm a rally. Overbought situations are promptly assumed by oscillators. Trend indicators begin to move to uptrend indicators. Price action starts to show higher highs with high volume and higher lows with low volume.
What is a lockout rally?
Typically, the first stage of a strike resembles a lockout rally. During this lockout period, investors wait for a chance to enter the market on a decline, which never comes. Strong demand, on the other hand, causes the market to march steadily higher, rejecting overbought warnings.
What is the reason behind market rally?
A rally occurs when there is a high demand for equities in the market, which results in a huge quantity of capital inflows into the market.