London - Stocks fell in Europe as energy producers got caught in a downdraft in crude prices and reversed an earlier gain. Bonds extended a slump triggered by last week’s hawkish rhetoric from central bankers.
WTI failed to break through $45 a barrel as Goldman Sachs warned measures by the Organisation of Petroleum Exporting Countries to clear a surplus won’t go far enough without sustained inventory declines and a drop in the rig count. The dollar gained against most major peers while petro-currencies including Russia’s ruble and Mexico’s peso and Norway’s krone led declines.
The reversal has exposed mounting doubt over a risk rally that has taken stocks to all-time highs. Analysts have started to cut their forecasts for company earnings amid concern over elevated valuations. Central banks are withdrawing almost a decade of stimulus risks even though macro data shows a mixed outlook, creating concern they could sap a global growth recovery.
“More hawkish comments out of key central banks in the final weeks of the second quarter had many in the markets questioning whether the win-win outcome for investors can really continue,” strategists at JPMorgan Asset Management said in a research note. “Now, especially, investors need to decide which is more important for asset markets: monetary policy or the underlying state of the recovery.”
Here’s what investors will be watching:
PepsiCo is due to report second-quarter results on Tuesday and JPMorgan Chase, Citigroup and Wells Fargo & Co on Friday. Federal Reserve Chair Janet Yellen’s testimony before Congress will be in focus later this week as investors look for guidance on when the US central bank could start reducing its balance sheet.
The UK government is due to publish it’s Repeal Bill on membership of the European Union this week. The Bank of Canada announces its interest-rate decision tomorrow, with a hike expected by most analysts.
These are the main moves in markets:
The Euro Stoxx 50 Index lost 0.3% as of 12:14, following a 0.4% gain on Monday. S&P 500 futures traded little changed.
West Texas Intermediate crude dropped 0.7% to $44.07 a barrel before US government data forecast to show crude stockpiles extended declines. Gold was down 0.3% at $1 210.66 an ounce, near the lowest since March on expectations of tighter monetary policy.
Spring wheat rose 1.6% to $8.1250 a bushel on the Minneapolis Grain Exchange, surging 51% this year amid concerns drought in US Northern Plains will curb output to a 15-year low.
The yield on 10-year Treasuries rose one basis point to 2.39%. The yield on 10-year bunds rose two basis basis points to 0.56%. Benchmark gilt yields rose three basis points to 1.3%, reversing direction after a two-day recovery.
The Bloomberg Dollar Spot Index gained 0.1%, with the greenback strengthening against all its G10 peers except the pound and Australian dollar. The pound added 0.3% to $1.2917 while the euro traded little changed.
The yen weakened 0.2% to 114.31 per dollar, extending declines to a third day. Japan’s Topix Index climbed 0.7%. Hong Kong’s Hang Seng Index strengthened 1.6%, heading for its first back-to-back gain in three weeks.
The Hang Seng China Enterprises Index soared 2.1%, its biggest advance since March 16. The Shanghai Composite Index was down 0.3% after a short-lived advance mid-afternoon local time. Other indices on the mainland were also lower.