Global stock markets fluctuated on Monday as a string of weak U.S. data highlighted negative risks for this week’s June payrolls report, and as the possibility of a recession continued to fuel a relief rally in government bonds.
The desire for protection held the U.S. dollar at 20-year highs, despite limited early trading as U.S. markets were closed for the holiday.
Cash Treasuries were closed, but futures continued their gains, indicating that 10-year rates remained stable around 2.88 percent, having declined 61 basis points from their high in June.
MSCI’s broadest index of Asia-Pacific stocks outside Japan was unchanged, while Japan’s Nikkei gained 0.6%.
Sunday, towns in eastern China increased COVID-19 restrictions in response to the emergence of fresh coronavirus outbreaks.
EUROSTOXX 50 futures climbed 0.5 percent and FTSE futures 0.6 percent . However, both S&P 500 futures and Nasdaq futures declined by 0.6% following a little stabilization on Friday.
David J. Kostin, an analyst at Goldman Sachs (NYSE:GS), observed that throughout the first half of the year, every S&P 500 sector except energy had negative returns.
“The present bear market has been totally driven by valuations rather than lowered profit projections,” he said.
“However, we anticipate that consensus profit margin predictions would decline, leading to lower EPS revisions regardless of whether the economy enters a recession.”
The earnings season begins on July 15, and with rising expenses and weakening data, expectations are being lowered.
The Atlanta Federal Reserve’s GDP Now prediction for the second quarter has fallen to an annualized -2.1%, indicating that the nation is now in a technical recession.
Friday’s data on payrolls is expected to reveal that job growth slowed to 270,000 in June, while average wages slowed to 5.0 percent.
RATES UP, THEN DOWN
The Fed’s June policy meeting minutes are virtually guaranteed to be hawkish, given the committee’s decision to raise rates by a whopping 75 basis points.
The market is pricing in a about 85 percent possibility of another rate rise of 75 basis points this month, with rates reaching 3.25 to 3.5% by the end of the year.
“However, the market has also begun pricing in a more aggressive rate-cutting profile for the Fed in 2023 and 2024, commensurate with a rising likelihood of recession,” NAB analysts added.
“About 60 basis points of Fed cutbacks are now priced into 2023,”
In currencies, investor demand for the most liquid safe haven has favored the U.S. dollar, which is approaching two-decade highs versus a basket of rivals at 105.04.
The euro remained unchanged at $1.0432, close to its previous five-year low of $1.0349. The European Central Bank is anticipated to increase interest rates this month for the first time in a decade, and a more aggressive half-point hike might boost the euro.
The Japanese yen also drew safe-haven flows late last week, pulling the dollar from a 24-year high of 137.01 yen to 135.05 yen.
Last week, the price of non-yielding gold fell to a six-month low of $1,810 per ounce as a result of a strong dollar and an increase in interest rates.
Fears of a worldwide economic slowdown also weakened industrial metals, with copper falling 25 percent from its March high to a 17-month low.
As investors balanced demand worries against supply limits, oil prices decreased. The latest hits to production were output limitations in Libya and a planned strike among Norwegian oil and gas employees.
Brent fell 34 cents to $111.29 per barrel, while US crude fell 30 cents to $108.13 per barrel.