On Monday, a gauge of world stocks climbed higher, as earlier gains in US equities were trimmed in a sell-off later in the session. Meanwhile, the dollar fell, as investors lowered their expectations of a super-sized rate hike from the US Federal Reserve in the coming week.
Interest rate and inflation
According to statistics, there was a 29% probability of the US Fed hiking interest rate by 100 basis points in the next week at its policy meeting, while they had hit 80% in the previous week. The recent inflation numbers were higher than expectations, but there were tentative signs that there could be an easing in higher prices.
Therefore, this could provide the US central bank the cushion it needs for increasing the rates by 75 basis points, as originally predicted. Market analysts said that the economic data on Friday had been more upbeat and the Treasury yields had also risen on Monday.
Wall Street had a strong start on Monday, but the trading session fizzled out, as Apple Inc. dropped after a report from Bloomberg. According to the report, the iPhone manufacturer plans on slowing its hiring and cutting down spending in some units next year in order to keep up with the economic downturn.
Analysts said that a slide had begun even before Apple’s news, but the announcement only sped things up. Initially, US equities had recorded gains, partly because of a 3% rise in bank stocks, as earnings of Bank of America and Goldman Sachs had increased by 0.05% and 2.5%, respectively.
There was a 0.69% drop in the Dow Jones Industrial Average, as it fell by 216.51 points to reach 31,071.75. A 0.84% fall in the S&P 500 saw it lose 32.34 points to end the day at 3,830.82. As for the Nasdaq Composite, it fell by 0.81%, or 92.37 points to hit 11,360.05.
About 40 S&P 500 companies reported their earnings on Monday morning and 80% of them were above estimates.
There was a 0.93% gain in the continent-wide European STOXX 600 index and a 0.06% gain was also recorded in the MSCI’s gauge of world stocks. Earlier in the day, European stocks had managed to hit a high of three weeks but were down once more because of worries about gas supply shortages in the region.
Before the US Federal Reserve’s meeting is scheduled for the next week, it is the European Central Bank (ECB) that will have to make the first move. It is scheduled for a meeting on July 21st and is expected to schedule an interest rate hike of 25 basis points.
Not only is Europe also dealing with inflationary pressures, but the Russia and Ukraine conflict has also resulted in gas supply worries. Gazprom has informed European customers that there is no guarantee of gas supplies, which would mean that Europe would not be able to build up its supplies for the winter. This would put the European economy under even more pressure than it already is.