Authors: Tom Westbrook and Amanda Cooper
SINGAPORE/LONDON (Reuters) – Global stock markets were mixed on Tuesday, with investors nervous ahead of corporate earnings reports and central bank decisions. Concerns about the global economic outlook weighed on commodity prices, while oil prices hit their lowest level since early June.
Global oil futures fell 1.4% as concerns about energy demand in China outweighed worries about tensions in the Middle East and Venezuela. [O/R]
Iron ore prices were also lower, while aluminum prices fell to multi-month lows. Meanwhile, China’s Politburo has been muted in its support, announcing no fresh specific measures to boost the economy at its July meeting.
“The consensus is that the U.S. economy will be weaker this quarter and maybe next, and you can’t rely on the euro zone to offer any compensation. China has its own problems and it doesn’t look like it’s going to turn around anytime soon,” said Chris Scicluna, an economist at Daiwa Capital.
“It is understandable that at this point in the cycle we were hoping that the global economy would gain momentum and start growing, but things seem to be calming down a bit,” he said.
The MSCI All-World Index, which is heading for a third straight monthly gain in July, was down 0.29 points, or 0.04%, at 804.06 by 10:45 a.m. ET (2:45 p.m. GMT).
On Wall Street, the index rose 162.83 points, or 0.40%, to 40,702.76, lost 2.44 points, or 0.04%, to 5,461.10 and lost 63.85 points, or 0.37%, to 17,306.35.
In Europe, London has withdrawn. The best alcohol producer Diageo (LON:) hits 4.5-year low after failing to turn a profit.
Preliminary data for the eurozone showed economic growth in the single currency bloc was 0.6% year-on-year in the second quarter of this year, beating forecasts for a reading of 0.5%. A separate report showed the German economy unexpectedly contracted in the second quarter, but that had little impact on interest rate expectations.
The yield on German 10-year government bonds fell by almost 1%.
‘THE CALM BEFORE THE STORM’
Interest rates remain front and center. Japanese government bond yields fell slightly, with the 10-year JGB yield ending down 3 basis points at 0.995%. [JP/]
The yield on the 10-year US Treasury bond fell to 4.1743%.[US/]
“The term ‘calm before the storm’ has been heard across the board,” said Chris Weston, head of research at Pepperstone in Melbourne. “It’s a day for position management and reviewing broad exposures.”
Markets are pricing in a near-zero chance of a US rate cut this week, but have fully priced in a 25 basis point cut in the federal funds rate in September. So expect policymakers to be dovish.
In Japan, a wider range of options are being considered as markets price in a nearly 60% chance of a 10 basis point rate hike and expect to hear about the Bank of Japan’s plans to withdraw from its massive bond-buying program.
The dollar and yen fluctuated but remained in fairly tight ranges after recent uptrends.
The euro fell slightly. The yen, which had rebounded sharply from a 38-year low of 161.96 per dollar reached in early July, came under pressure.
“We are at an interesting crossroads for the yen,” said Nathan Swami, head of foreign exchange trading at Citi in Singapore, with central bank meetings this week likely to outline a change in the outlook for interest rates and the yen’s trajectory.
“It is too early to tell whether the drivers of yen weakness have changed permanently. For now, it looks more like a short-term correction to the higher trend, but we believe there are downside risks that need to be priced into the deal.”
Later that day, Microsoft (NASDAQ:) and chipmaker AMD (NASDAQ:) will report earnings after the New York Stock Exchange session, while preliminary CPI data will be released in Germany and Spain.
Australian inflation data will also be released on Wednesday, and the Bank of England estimates the chances of an interest rate cut at its meeting on Thursday are about equal.
(In paragraph 1 of this story, the line “Tuesday” was corrected.)
