Prospects of monetary tightening by the Fed continue to weigh on investor sentiment
Wall Street stocks fell slightly on Monday as investors were preparing for a big week ahead of corporate earnings. The Dow Jones Industrial Average slid 0.1%, the S&P 500 dipped 0.02%, and the Nasdaq Composite lost 0.1%. The 10-year Treasury yield reached its highest level since late 2018 while commodity prices stayed elevated amid rising geopolitical tensions surrounding Ukraine. Adding to a more cautious tone among investors, Goldman Sachs warned that getting a soft landing may be difficult for the US economy.
Asian equities retreated on Tuesday, with MSCI’s broadest index of Asia-Pacific shares outside Japan shedding 0.5%. The Shanghai Composite Index fell less than 0.1% while Hong Kong’s Hang Seng index finished down 2.4% as Shanghai reported more than 20,400 new cases on April 18. As a reminder, the PBOC said on Friday it would cut the reserve requirement for all banks by 25 basis points. Elsewhere, the RBA minutes showed that the members agreed the financial conditions in Australia remain highly accommodative.
In Europe, stocks opened lower on Tuesday, with the Stoxx 600 Europe Index retreating 0.7% in early deals as prospects of monetary tightening by the Fed continue to weigh on investor sentiment. Fed’s Bullard said overnight that he will not rule out a 75bp increase but the base case is not for more than 50bps at any meeting. He also noted that events in Ukraine will have a meaningful impact on Europe’s economy, but less on North America. Meanwhile, French finance minister said embargo on Russian oil is in the works.
In currencies, the USD index rallied to March 2020 highs around 101.00, buoyed by hawkish comments from Bullard. The US currency also continues to derive support from safe-haven flows amid the ongoing military operation in Ukraine and rising inflation pressures globally. Against this backdrop, EURUSD fell back to the area of two-year lows before bouncing back to the 1.0800 mark in recent trading. It looks like the common currency could take a pause before another sell-off that would push the prices to fresh long-term lows.