On Monday, world stocks and US bond yields declined, as investors geared up for new inflation data and the beginning of the earnings season that might influence the future interest-rate hiking path of the US Federal Reserve.
The continent-wide STOXX 600 index fell by 0.50%, while there was a 1.17% decline in the MSCI’s gauge of world stocks. The euro came close to reaching parity against the US dollar, as the annual maintenance of Nord Stream I began on Monday, which will continue for 10 days. There was also a decline in the bond yields in the eurozone.
Meanwhile, long-term expectations of inflation fell below 2%, as there was a rise in fears of an economic recession due to possible cuts in gas supplies from Russia. The benchmark for the euro zone i.e. the German bond yields declined to 1.296% by 5 basis points. Last week, they had come down to 1.072%, which is a low of five weeks.
Highlighting the global dilemma of inflation, the New Zealand and Canadian central banks are also expected to tighten their respective monetary policies this week.
Wall Street’s performance
July had seen Wall Street start off strong after having gone through its worst first half in a long time. However, it declined further because of traders worried about company results triggering another sell-off in the market by not living up to expectations.
There was a 0.689% increase in the US dollar index, while a 1.2% drop was recorded in the euro, which brought it down to $1.0061. On Thursday, earnings from Morgan Stanley and JPMorgan will test the market mood, while Wells Fargo and Citigroup will present its earnings on Friday.
Market analysts said that investors were concerned about weaker earnings due to the slowdown in economic growth and also because of a strengthening US dollar, as it affects the earnings of multinationals.
There was a 0.42% drop in the Dow Jones Industrial Average, while a 1.04% fall in the S&P 500 was recorded and a 2.02% loss in the Nasdaq Composite was also seen.
There is a series of economic data scheduled for release in the US this week. This includes retail sales, consumer prices, and factory output data. All of this will provide some insight into how much inflation has increased and whether it is close to a peak or not. Plus, it will also give a glimpse of whether there has been enough of an economic slowdown for the Federal Reserve to consider slowing its interest rate hike.
The US central bank is scheduled to have a policy meeting the next week, in which it is expected to increase the interest rate by another 75 basis points. Market analysts said that since inflation is too high, the possibility of a recession cannot be ignored. But, it is also a fact that a lot of the negative news has already been priced in, as indexes like the S&P 500 and Nasdaq have all fallen from their all-time highs.