On Tuesday, US Treasuries rose, while equities recorded declines, a day before the expected interest rate increase by the US Federal Reserve.
Investors were dealing with rising economic concerns after the profit warning from retail giant Walmart Inc. and the indicators of a gas supply crunch in Europe.
The US dollar also saw a boost due to demand for safety, helping it snap out of a three-day losing streak, while the euro was under pressure due to gas supply woes.
Gas woes and equity decline
Russia’s energy giant Gazprom announced that gas supplies to Germany through the Nord Stream 1 pipeline would reduce by half of the existing supply, which is already 40% of capacity.
This prompted leaders of the European Union to come together and agree to ration the usage of gas amongst countries.
A decline in retail stocks due to Walmart’s profit forecast saw US equities fall, as the retail giant said that consumer discretionary purchases had declined because of surging prices for fuel and food.
Market analysts said that Walmart is regarded as a test of consumer health and its warning has investors concerned about economic growth, giving rise to uncertainty.
There is the Fed’s interest rate decision coming this week, along with key economic data that will provide further details.
According to analysts, investors have to be short-term focused in this week because there is a great deal of volatility and things are changing rapidly.
On Wednesday, the US Fed is expected to conclude its two-day policy meeting and announce an interest rate hike of 75 basis points.
There is a 10% risk priced in by markets of a larger interest rate hike and investors are also waiting to see if there is a shift in rhetoric because of the economic warning signs.
The market would probably be taken by surprise due to a 100 basis points increase, but if it is as expected, and the Fed sees signs of slowing, it could be a positive indication.
There was a 0.71% drop in the Dow Jones Industrial Average by 228.5 points, which brought it to 31,761.54.
A 1.15% fall in the S&P 500 saw it come down by 45.79 points to 3,921.05, while a 1.87% fall in the Nasdaq Composite brought it down by 220.09 points to 11,562.58.
There was a 0.03% drop in the continent-wide STOXX 600 index and a 0.29% decline in the MSCI’s gauge of world stocks.
The forecast from the International Monetary Fund for the real GDP growth globally also added to the gloom, as the financial institution slashed its previous forecasts.
The forecast in April had predicted real GDP to grow by 3.6%, but it was slashed to 3.2% for the year. This was because of the risks of an economic recession due to the Russia and Ukraine conflict and high inflation.
Oil prices had increased earlier in the session, but came down once more, as investors were concerned about a decline in consumer confidence.