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Wall Street was set to open higher on Tuesday and European shares were set for a second day of gains, recovering slightly from last week’s 17-month lows, but major central banks’ rate hike plans and global recession risks kept investors cautious.
World stocks have edged higher so far this week, recovering from last week’s sharp selloff which saw global equities tumble to their lowest since November 2020 as expectations for central bank policy tightening to combat high inflation prompted investors to ditch risky assets.
At 1110 GMT on Monday, the MSCI world equity index, which tracks shares in 50 countries, was up 0.4% on the day.
Europe’s STOXX 600 was up 0.8% and London’s FTSE 100 was up 0.7%.
U.S. markets, which were closed on Monday for a holiday, were set to open higher, with S&P 500 e-minis and Nasdaq futures both up by 1.7%.
Still, analysts expect the bounceback to be short-lived. Timothy Graf, head of macro strategy for EMEA at State Street Global Markets, said the move higher was likely a result of markets being oversold in recent weeks and relief that event risks, such as the Bank of Japan and Swiss National Bank meetings, have passed.
I think it’s a pause in what is still a trend where you have this rising probability of slowing growth, high inflation and stagflation potentially outcome, he said.
Equity markets and the earnings prospects for corporates I don’t think have really taken that on board.
Goldman Sachs said it now thinks there is a 30% chance of the U.S. economy tipping into a recession over the next year, up from its previous forecast of 15%.
Germany’s BDI industry association slashed its economic forecast for 2022 and said that a halt in Russian gas deliveries would make recession in Germany inevitable.
Earlier in the session, the Reserve Bank of Australia’s governor Philip Lowe signalled more rate increases and said that inflation was expected to reach 7% by the end of the year.
European bond yields rose, with the benchmark 10-year German yield up 12 basis points on the day at 1.78%.
In currency markets, the euro was up 0.4% at $ 1.05515, while the U.S. dollar index was down 0.2% on the day at 104.07.
The U.S. 10-year yield was at 3.2844%, down from last week’s peak of 3.495% – its highest since 2011 – which came the same day the Fed raised interest rates by a massive 75 basis points.
The Japanese yen, which has fallen sharply in recent months, dropped further to $ 135.97 – the yen’s weakest since 1998.
Japan’s Prime Minister Fumio Kishida said that the central bank should maintain its current ultra-loose monetary policy. This makes it an outlier among other major central banks.
Oil prices rose as investors focused on tight supplies of crude and fuel products. Brent crude futures were up 1.1% at $ 115.38 while U.S. West Texas Intermediate (WTI) crude futures were up 1.4% at $ 111.13 .
Gold was little changed at around $ 1,832.6 an ounce.
Bitcoin was up around 3% on the day at $ 21,173, having stabilised slightly since it plunged to as low as $ 17,592.78 at the weekend. Cryptocurrencies have increasingly become a metric of risk appetite, State Street’s Graf said.
