Stock markets diverged and oil prices fell on Monday as traders watched weak Chinese economic data and a looming U.S. interest rate hike that could tame inflation but also thwart growth.
Stocks got off to a bad start in May after Wall Street ended a tough April by closing sharply on Friday following disappointing results from tech giant Amazon.
“Markets remain nervous about an expected aggressive monetary policy tightening cycle from the Fed as the Central Bank prepares to raise rates this week,” analysts at investment firm Charles Schwab said.
“Additionally, global sentiment continues to be hampered by the ongoing war in Ukraine, the recent spike in interest rates, the rally in the US dollar and slowing economic activity in China,” they said. .
Wall Street rocked in early trades.
Eurozone markets fell sharply in afternoon trading, with Paris down nearly 2% and Frankfurt down 1.3%. London was closed for a bank holiday.
Tokyo, Seoul, Mumbai, Manila, Sydney and Wellington all ended lower. Markets in Hong Kong and mainland China were closed along with several other Asian markets.
Data over the weekend showed Chinese manufacturing activity shrank last month at its fastest pace since the start of the pandemic as the government enforces Covid-19 lockdowns in the second largest cities Mondial economy.
As Shanghai’s economic hub remains in lockdown, Beijing has tightened virus checks in the capital, requiring clear Covid tests to visit public spaces.
This follows dismal economic data in Europe on Friday showing that Russia’s invasion of Ukraine was weighing on growth.
Struggles in China, the world’s biggest crude importer, have led to lower on-demand commodity prices, offsetting concerns about a supply crunch as the EU considers a ban on Russian oil following its invasion of Ukraine.
Oil prices fell more than 3%, with Brent North Sea crude, the benchmark international contract, falling to $103.71.
The European Commission is preparing a text of sanctions which could be submitted to the 27 member states as early as Wednesday, sources said, adding that the ban would be introduced over six to eight months to give countries time to diversify their supply.
– The price increase is expected to be significant –
Investors are also anticipating the US Federal Reserve’s two-day policy meeting, which begins on Tuesday and is expected to see the central bank raise borrowing costs by half a point – the most since 2000 – to bring soaring prices under control. the consumption.
Some analysts are predicting that the Fed could even announce a three-quarter point hike at some point as it battles higher inflation than 40 years ago.
While some commentators are warning that rates could hit 3%, there are also fears that the Fed could be too authoritarian and tip the US economy into recession.
“The Fed must make up for lost time and act quickly and decisively in the face of inflation that continues to surprise as it increases,” said Franck Dixmier, head of fixed income at Allianz Global Investors.
“The challenge in executing its monetary policy normalization is to ensure a soft landing for the US economy…while maintaining a buoyant labor market and most importantly avoiding triggering a recession,” did he declare.