Global stocks faced a downturn, and the dollar strengthened on Monday as apprehensions about economic growth weighed on investor sentiment, just before a week filled with central bank meetings in several countries, including Norway, Sweden, Switzerland, Britain, the United States, and Japan.
The pan-European index declined by 0.5%, led down by healthcare, banking, and semiconductor stocks.
France’s third-largest listed bank, Societe Generale, witnessed a more than 6% decline in its shares, marking its most significant one-day drop since March. The bank disclosed that it anticipates minimal to no growth in annual sales over the forthcoming years in its eagerly awaited strategic plan under its new CEO.
Worries about global growth intensified due to concerns about China’s property market, geopolitical tensions, and ongoing labor strikes.
China Evergrande Group’s shares, a property developer, plummeted by 25% as police detained some personnel from its wealth management unit. Another property developer, Country Garden, faced another liquidity test with a $15 million interest payment deadline linked to an offshore bond.
Technology shares in the region also retreated, with Taiwan’s TSMC, the world’s leading contract chip manufacturer, falling by 3% after Reuters reported that it had instructed its major suppliers to delay the delivery of high-end chipmaking equipment.
The uncertainty about China’s defense minister’s disappearance, worker strikes affecting global production, and concerns about a U.S. government shutdown’s return further heightened market uncertainties.
U.S. futures for the S&P 500 and Nasdaq edged up by 0.1%.
James Rossiter, Head of Global Macro Strategy at TD Securities in London, remarked, “Bad news stories on the growth side will add to the risk-averse feeling that has been a backdrop in markets.” TD Securities’ models predict a growth slowdown later this year, which central banks may eventually need to counter by cutting rates, according to Rossiter.
MSCI’s broadest stock index declined by 0.15%, following lower openings in European indices. Japan’s Nikkei remained closed for a public holiday.
Oil prices reached new ten-month highs, adding to inflationary pressures. Brent crude futures rose by 27 cents to $94.19 per barrel, while U.S. West Texas Intermediate crude futures gained 37 cents to reach $91.13, their highest levels since November.
Central Banks in the Spotlight
Global central banks take center stage, with five of the central banks overseeing the ten most heavily traded currencies holding rate-setting meetings this week, along with several emerging market central banks.
The Federal Reserve’s meeting on Wednesday is widely expected to result in a second consecutive pause, maintaining the targeted range at 5.25% to 5.5%. Therefore, the focus will be on updated economic and rate projections. Markets currently anticipate approximately 80 basis points of rate cuts next year.
Chris Weston, Head of Research at Pepperstone, noted, “In theory, the FOMC meeting should be a low-volatility affair, but it is a risk that needs to be managed.” He added that any revisions to the Fed’s rate projections for 2024 could affect rate cuts pricing and reignite interest in the dollar while exerting downward pressure on global stocks.
The Bank of England is expected to raise rates for the 15th time on Thursday, taking benchmark borrowing costs to 5.5%.
The Bank of Japan’s meeting on Friday is a key event to watch. Market participants are looking for any indications that the BOJ might be moving away from its ultra-loose policy faster than previously thought, following recent comments by Governor Kazuo Ueda that pushed yields much higher.
In currency markets, the dollar remained robust, hovering near its six-month high at 105.29 against a basket of major currencies.
The euro gained approximately 0.1% to reach $1.0663, after hitting a 3.5-month low of $1.0632 last week when the European Central Bank signaled that its rate hikes might be on hold.
Gold prices increased by 0.1% to reach $1,924.10 per ounce.