(MENAFN- Khaleej Times) Global stocks were down on Wednesday, extending the previous session's sharp sell-off, as oil prices rallied and US Treasury yields climbed along with the dollar.
US crude oil futures briefly nudged above $94 per barrel, intensifying concerns about rising gasoline prices and their impact on inflation and consumer spending.
The dollar index hit its highest level since late November 2022, pushing the euro to an almost 9-month low and keeping the yen in intervention territory, as investors bet that the United States will cope better with higher interest rates than other economies.
Stocks and bonds have been dropping in price in recent weeks as investors prepared for the prospect that central bankers will hold interest rates“higher for longer” than previously expected, to try to squeeze inflation out of global economies.
On top of rate concerns, soaring oil prices and a rising dollar, investors have also been eyeing Detroit's auto worker strikes and as well as the uncertainty of a potential US government shutdown in coming days.
“That's like a triple whammy for US equities,” said Irene Tunkel, chief US strategist at Montreal-based BCA Research, referring to gasoline, rates and the US dollar.
“Higher energy costs will cut into consumer spending power. For many people gasoline is a big part of their spending. And considering that consumers are running out of savings, they'll have to shift spending to gasoline and cut elsewhere. This will weigh on consumer spending and economic growth,” Tunkel said.
“If you have a higher US dollar it tightens financial conditions along with rising rates. The dollar puts pressure on multinationals ... it's a lethal cocktail,” she said.
The Dow Jones Industrial Average fell 88.56 points, or 0.26 per cent, to 33,530.32, the S&P 500 lost 3.79 points, or 0.09 per cent, to 4,269.74 and the Nasdaq Composite added 7.36 points, or 0.06 per cent, to 13,070.97.
The pan-European STOXX 600 index had closed down 0.18 per cent. MSCI's gauge of stocks across the globe shed 0.22 per cent after falling 1.2 per cent in Tuesday's session.
The global index, which is eyeing its ninth consecutive daily decline, has fallen 4.8 per cent since the start of September, tracking for its biggest monthly loss in a year.
While Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, said some investors went shopping for bargains earlier in the day but he did not believe the market had reached a bottom yet.
“We're on a cusp but we're not there yet. We still have a lot of headwinds: the automotive strike, the possibility of a government shutdown again, higher interest rates ... and oil trading above $90 a barrel,” Pavlik said.
In US Treasuries, after falling as low as 4.49 per cent earlier in the day, benchmark 10-year notes were up 6.8 basis points at 4.626 per cent, from 4.558 per cent late on Tuesday. The 30-year bond was last up 3.4 basis points to yield 4.7296 per cent, from 4.696 per cent. The 2-year note was last was up 6.9 basis points to yield 5.1458 per cent, from 5.077 per cent.
In currencies, investors are on the lookout for government intervention in the Japanese yen as it has been approaching 150 per dollar, which is seen as the level at which Japan could intervene.
The yen fell 0.39 per cent versus the greenback at 149.60 per dollar after hitting its weakest level against the greenback in roughly a year.
The dollar index, which measures the greenback against a basket of major currencies, rose 0.461 per cent, with the euro down 0.66 per cent to $1.05, while sterling was last trading at $1.2131, down 0.21 per cent on the day.
“The US is most able to cope with these new challenges -- higher interest rates and higher energy prices,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, citing the depth of US capital markets and households that are more immune to rising interest rates.
“Yes, these are major headwinds, but the US still looks like the driest towel on the rack. The news from Europe isn't really that good,” Chandler added.
Oil prices surged on Wednesday, after US crude stocks fell more than expected, adding to worries of tight global supplies.
US crude settled up 3.6 per cent at $93.68 per barrel after touching $94.04, its highest level since late August 2022. Brent was trading at $96.88, up 3.11 per cent on the day.
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