A global stock market downturn driven by surging oil prices, fears over inflation and US monetary policy tightening paused in Europe on Tuesday, as investors waited for key economic data.
The Stoxx Europe 600 share index closed on Monday at its lowest level since July 20, as speculation about central banks moving closer to their first pandemic-era interest rate increases hit highly valued technology stocks. But it opened 0.2 per cent higher on Tuesday, while London’s FTSE 100 index rose 0.3 per cent.
Futures markets signalled that Wall Street’s S&P 500, which on Monday fell 1.3 per cent to its lowest closing price since late July, would flatline in early New York dealings on Tuesday.
Contracts on the Nasdaq 100, which dropped 2.2 per cent on Monday, indicated that the tech-heavy US share index would gain 0.2 per cent.
Later on Tuesday, investors will scrutinise the Institute for Supply Management’s purchasing managers’ index for the services sector for fresh clues on whether supply chain pressures and worker shortages related to the coronavirus pandemic are abating.
The US Federal Reserve has indicated that it is ready to announce reductions of its $120bn a month of debt purchases that have supported bond and equity prices through the pandemic, while half of its policymakers expect to raise interest rates next year.
Jobs data on Friday are expected to show that US employers hired almost half a million new workers in September, which analysts say may lead the Fed closer to judging that the labour market is strong enough for some monetary support to be withdrawn.
“Inflation could be a short-term setback for now, but it has planted the seed that the investment environment we’ve enjoyed for years cannot persist,” said Georgina Taylor, multi-asset fund manager at Invesco.
“The risk for markets is that it changes the investment mix of low rates that push money into risky assets,” she added. “And while central banks are still talking about inflation as transitory and holding out, it is proving more challenging for them to do so.”
Headline US inflation has run above 5 per cent for three consecutive months while the annual rate of price rises in Germany has hit a 29-year high.
Wall Street’s slide on Monday was led by losses for large tech companies. Facebook dropped 4.9 per cent as its eponymous platform as well as Instagram and WhatsApp suffered outages. On Tuesday morning, Hong Kong’s tech share index touched its lowest level in six weeks.
Hong Kong’s benchmark Hang Seng index fell as much 1.5 per cent in early trading on Tuesday before recovering to trade flat. Japan’s Topix lost as much as 2.3 per cent in morning trading before closing 1.3 per cent lower.
Brent crude, the international oil marker, rose 0.2 per cent to $81.5 a barrel on Tuesday morning, around a three-year high. West Texas Intermediate, the US crude benchmark, was steady at $77.71, around its highest in seven years. Opec +, the oil producers group, on Monday resisted calls to increase output despite an energy shortage in Europe and Asia that has pushed natural gas and coal prices to record levels.
The yield on the benchmark 10-year US Treasury note, which moves inversely to its price, added 0.01 percentage point to 1.491 per cent. This key debt yield has climbed from about 1.3 per cent in late September, tracking expectations for prolonged inflation and eventual US rate rises.