Updated at 4:15 pm EST
Stocks finished lower Tuesday, while the dollar traded past its highest levels in two decades on foreign exchange markets, as investors eased out of risk markets amid concerns over Europe’s escalating energy crisis and a hawkish Federal Reserve.
Russia’s decision to halt the flow of natural gas to Europe from its key Nordstream 1 pipeline, a move it first linked to repairs but acknowledged Monday was in retaliation for economic sanctions and would last “indefinitely”, threatens to add further pressure to the region’s cost of living crisis while ensuring that inflation continues to test all-time highs.
The move pushed the euro to a fresh 20-year low against the U.S. dollar yesterday, even with traders pricing in a 75 basis point rate hike from the European Central Bank later this week, and sparked a retreat from regional stocks during yesterday’s Labor Day holiday trading.
Tuesday’s initial recovery was tested by both the ongoing surge in the dollar, which hit a new 24-year peak against the Japanese yen in overnight trading and touched 2.5 year highs against both the British pound and the Chinese yuan.
The energy crisis concerns are so great, in fact, that new U.K. Prime Minister Liz Truss is considering a $170 billion support package to get through this year’s winter months, a figure that represents around 5% of U.K. GDP.
Europe’s Stoxx 600 edged 0.34% higher in late-afternoon trading in Frankfurt, while the euro slid to 0.9895 against the greenback in overnight foreign exchange dealing.
The U.S. dollar index, meanwhile, rose 0.5% to hit a fresh 20-year high of 110.373 against a basket of six global currency peers while interest-rate sensitive 2-year note yields jumped 6 basis points to 2.533%.
In the U.S., last Friday’s ‘Goldilocks’ August jobs report, which showed 315,000 new hires but modestly slowing wage growth, looks set to give stocks an early Tuesday boost, although bets on a third consecutive 75 basis point rate hike from the Fed later this month are holding at around 68%, according to the CME Group’s FedWatch.
Federal Reserve Chairman Jerome Powell, in fact, will highlight a quiet week for earnings and data on Wall Street as investors look to the central bank’s September policy meeting.
Powell, who delivered a surprisingly hawkish signal on interest rates and inflation to investors when he spoke late last month in Jackson Hole, will take part in a discussion on monetary policy at the Cato Institute’s 40th annual conference on Thursday.
His comments will come just minutes after European Central Bank President Christine Lagarde will begin speaking to reporters in Frankfurt following what is likely to be another big rate hike for the single currency area amid record inflation and soaring energy prices.
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“We look for the Fed to be more balanced,” following the likely 75 basis point rate hike on September 21, JPMorgan equity strategist Mislav Matejka.
“Inflation should keep showing signs of rolling over, and inflation expectations are unlikely to move
higher, as they display a strong link to oil,” he added.
Oil prices were marked sharply lower in overnight trading, despite news of the Nordstream shutdown, amid a fresh round of Covid lockdowns in China that offset a modest proposal by OPEC members on Monday to cut their collective output target by 100,000 barrels per day, starting next month.
WTI futures for October delivery, which are tightly-linked to domestic gas prices, were marked 5 cents lower on the session at $86.76 per barrel while Brent crude contracts for November, the global pricing benchmark, fell $3.09 to $92.66 per barrel.
On Wall Street, the S&P 500 ended down 0.41%, while the Dow Jones Industrial Average fell 173 points, or 0.55%, to 31,145. The tech-focused Nasdaq lost 0.74%.
Apple (AAPL) shares ended 0.8% lower ahead of the tech giant’s ‘Far Out’ product launch event, scheduled for 10:00 am Pacific time Wednesday in Cupertino, California.
The highly-anticipated event is likely to include new versions of both its flagship iPhone and Apple Watch, alongside previously-announced operating system upgrades and the expansion of its homemade A15 chip.
CVS Health (CVS) shares edged 0.69% lower after the pharmacy group agreed to buy healthcare services specialists Signify Health (SGFY) for around $8 billion, outbidding rivals UnitedHealth (UNH) and Amazon (AMZN) .
Bed, Bath & Beyond (BBBY) shares tumbled 18.4% following a weekend tragedy that took the life of its recently-appointed CFO Gustavo Arnal.
Arnal fell to his death from a high floor of a Manhattan skyscraper known as the Jenga Tower on Friday evening, police confirmed Sunday, with the New York City Medical Examiner’s office determining the cause of death as suicide the following day.
Digital World Acquisition DWAC, the so-called blank check company that is planning to merge with former President Donald Trump’s fledgling media group, fell more than 20% following a Reuters report that it may need to scarp the multi-billion deal if it can’t get shareholder support for an extension.