LONDON – Global shares fell on Tuesday as weak earnings and fears of slower growth shattered recent mini-rallies, while sharp remarks by European Central Bank chief Christine Lagarde reminded sharp markets that rate hikes are looming.
Nasdaq futures lost 2.06%, with traders blaming an earnings warning from Snap as the Snapchat owner’s share fell 28%, while the S&P 500 futures fell 1.47%.
This was followed by a 1.4% fall in the broader MSCI index of Asia-Pacific shares outside Japan, while the benchmark STOXX index of European stocks fell 1.1%.
All major sectors fell, with utilities and commodity-linked stocks leading the way, as investors waited for the May Purchasing Manager index data in the morning session to signal a slower economy.
Yields in Italian and Greek bonds, meanwhile, hit recent highs when Lagarde said on Tuesday that he saw the ECB’s deposit rate zero or “slightly above” by the end of September, indicating an increase of at least 50 basis points from current levels.
The comments came a day after Lagarde hastened a policy change that saw him walk away from everything but denied the move to pencil several hikes this year.
Phil Shaw, chief economist at Investech in London, said: “This has pushed the ECB into global markets about the possibility of at least a more aggressive move.”
“There were reports overnight that some members of the Governing Body thought that his remarks yesterday seemed to invalidate the 50 basis point increase, but put his comments on the table today,” he said.
Germany’s 10-year Bund yield fell to 0.98%.
The dollar index, which tracks its performance against a basket of major currencies, has already fallen 0.2% to 101.95, a one-month low.
The euro was near a one-month high as the ECB narrowed its opposition to a July rate hike.
It saw the euro at $ 1.0715, bouncing 1.2% overnight in its best session since early March. It is now facing tough chart resistance near $ 1.0756.
The market took some consolation from US President Joe Biden’s remarks on Monday that he was considering easing tariffs on China and on Beijing’s ongoing commitment to stimulus.
Unfortunately, China’s zero-cove policy and its lockdown have already caused considerable economic damage.
“Following the disappointing activity data for April, we have again lowered our forecast for China’s GDP (gross domestic product) and are now looking for a 2Q GDP contraction of 5.4% per annum, previously -1.5%,” JPMorgan analysts warned.
“Our 2Q global growth forecast stands at just 0.6% year-on-year, easily the weakest quarter since the global financial crisis beyond 2020.”
Preliminary surveys by European and US manufacturing purchasing managers for the month of May may indicate a slight slowdown in the global economy as a resilient sector.
Japan’s manufacturing activity rose at its slowest pace in three months in May amid supply disruptions, while Toyota announced plans to cut its output.
Analysts are also cutting growth forecasts for the United States as the Federal Reserve looks set to raise interest rates by an entire percentage point in the next two months.
The hackish message is likely to be driven home this week by a host of Fed speakers and minutes of Wednesday’s final policy meeting.
The pullback in dollars has helped gold gain some ground back to $ 1,858 an ounce.
Oil prices were caught amid concerns of a possible global recession and the possibility of higher fuel demand from the US summer driving season and plans to reopen Shanghai after a two-month coronavirus lockdown.
US crude fell 20 cents to 110.10 a barrel, while Brent fell 0.19% to 3 113.24.
(Additional reporting by Wayne Cole in Sydney, edited by Kim Kogil, Jason Neely and Simon Cameron-Moore)