Global markets returned to a temporary lull today, with the recession-strickeneuroplunging to a 20-year low, stocks edged higher and oil prices back above $100 a barrel after plunging nearly 10% a day earlier.
It's certainly not entirely clear to traders, but the volatile moves over the past 24 hours have at least eased.
The eurowas flat against the dollar this month, trading lower again at $1.02.But the intensity dropped markedly as stocks and Brent rose, a natural gas strike in Norway and Wall Street expected to trade sideways later on.
Euro zonegovernment bond yields also continued to fall, although sterling barely flinched after the country's finance minister and a dozen others sharply resigned in protest against British Prime Minister Boris Johnson.
The broad Stoxx Europe 600 rose 1.6%, with London, Frankfurt and Paris up 1.7%, 1.5% and 1.4% respectively, led by gains in retail, travel and mining stocks.
Still, analysts say worries that the world economy is stalling are still lingering.
"The market movement over the past few days is typical of recession pricing," said Hugh Gimber, global market strategist at JPMorgan Asset Management."Investors are really becoming more aware of risk." The dollar's six-currency index rose to a 20-year high of 106.97, with other safe-haven assets also in demand, including the yen.
The MSCI World Equity Index, which tracks stocks in 47 countries, has fallen 20% this year but was flat despite gains in European stocks.
S&P 500 futures pointed to a drop of about 0.1% to 0.3% on Wall Street, with the main focus on minutes from the Fed's most recent meeting, which will be released later.
Overnight, MSCI's index of Asia-Pacific shares outside Japan fell 1%, with indexes in Taiwan and South Korea down 2% amid the coronavirus outbreak in China.
For global markets to feel better again, oil prices and inflation must now fall and stay low, said Hans Peterson, global head of asset allocation at SEB Investment Management in Sweden.
"What we're looking at is how consumers react and how central banks react and when they'll be comfortable with what they're doing," Peterson said, referring to rising interest rates and the withdrawal of stimulus.
gas
Brent crude futures entered U.S. trade at $103.87 a barrel, having earlier rallied as high as $105.85 as supply worries offset recession fears.
Uncertainty over European gas supplies has sparked the latest bout of growth concerns, sending prices soaring.Benchmark Dutch gas prices have doubled since mid-June.
However, they fell 7% on Tuesday after the Norwegian government intervened to end an industrial strike that appeared to exacerbate Europe's energy crisis, and now warnings of rationing have emerged.
Some investors worry that the flow of gas along the Nord Stream pipeline, which transports gas from Russia to Germany after a 10-day maintenance shutdown from July 11, may not resume, and that winter supply shortages will lead to a sharp drop in rationing and economic activity .
The background is rising interest rates.
Minutes from the Fed later in the meeting should provide insight into its June meeting, which announced the largest hike in U.S. benchmark interest rates in nearly 30 years.That could herald more rate hikes, as Fed officials have said their priority is fighting inflation, even at the cost of economic growth.
A key part of the U.S. Treasury yield curve — the two-year and 10-year ranges — remained inverted for the second day in a row on Wednesday, signaling growing fears of recession risk in the world’s largest bond market.
An inversion of this part of the Treasury curve is seen as a reliable indicator that a recession is imminent, usually 18-24 months away.
On Tuesday, the two-year, five-year segment also remained inverted for the first time since February 2020. "The likelihood of a soft landing has dropped significantly," said August Hatecke, co-head of Asia Pacific at UBS Wealth Management. told investors at a conference in Singapore.
