London/Sydney — World stock markets and the dollar rally stalled on Thursday, oil skidded on talk of a co-ordinated release of reserves, while Turkey’s lira tumbled again on bets its central bank would defy economy logic and slash interest rates.
Oil prices slipped below $80 a barrel overnight after the US and China hinted they could tap their fuel reserves, but there was sign of Europe’s inflation pressures easing as gas prices there consolidated a 60% November surge amid wrangling over the Nord Stream 2 pipeline.
That and the fact the euro was finally getting some respite from the dollar in the currency markets meant the record-high Stoxx 600 equity index struggled early on after 17 gains in the past 19 sessions.
In emerging markets, Turkey’s lira was flirting with a collapse through 11/$. The currency has slumped more than 25% this year as inflation has soared to 20%. Pressure from President Tayyip Erdogan in recent days has stoked expectations the central bank will slash interest rates by at least another 100 basis points at 11am GMT.
“The main thing that drives the lira these days is what President Erdogan says and it feels like recently that he has just decided to let it go,” said Vladimir Demishev a senior interest rates trader at Sova Capital, adding that his view of what would happen with rates later had been changing all week.
S&P 500 futures, meanwhile, were up 0.3% after the index eased on Wednesday when retail giant Target became been the latest to warn that three-decade high US inflation was putting pressure on profit margins.
“We do seem to have stalled somewhat as we head into the year end,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners in Sydney. “Investors perhaps are just taking a bit of pause,” she said, referring to a strong US earnings season, but as inflation and China’s slowdown loom as macroeconomic headwinds.
In Asia overnight, Japan’s Nikkei ended down 0.3%. The MSCI’s broadest index of Asian shares outside Japan dropped 0.5%, dragged down mostly by weakness in Hong Kong tech stocks as Chinese heavyweight Alibaba fell more than 5%.
Ant Group and SoftBank-backed payments firm Paytm also took a drubbing on debut in India, with shares falling 21% below the listing price in their first session.
Meanwhile, safe-haven assets hung on to most of Wednesday’s gains. The yen, which posted its sharpest one-day slump in three months a day ago, hovered at 114.18/$ as the greenback’s rally paused.
Gold was steady at $1,864 an ounce. Benchmark 10-year Treasury yields also held at 1.5906% after falling about 5.5 basis points on Wednesday. Germany’s 10-year yield, the benchmark of Europe, was down 2 basis points at -0.26%, but the inflation pressure was still showing.
The inflation linked 10-year Bund yield was just off a fresh record low — yields move inversely to price — and the closely-followed five-year, forward inflation gauge hovered just under 2%.
Hinting at division among European Central Bank (ECB) policymakers, board member Isabel Schnabel said on Wednesday that the central bank must be ready to rein in inflation if it proves to be more stubborn than expected.
Against the backdrop of apparent caution is a surging US dollar, as data in the world’s biggest economy has turned surprisingly strong just as doubts have arisen over the outlook for other major economies.
By contrast, Europe is grappling with a wave of Covid-19 cases and fresh restrictions to curb it, while the ECB is pushing back on pressure to raise rates.
The euro recovered from just below $1.13 but remained shaky on Thursday at $1.1317. It is also on course for its worst month versus the dollar since June when the Federal Reserve surprised investors with a hawkish shift in tone.
Currency traders are also assessing a sharp downdraft in the Aussie/yen cross, often a barometer of sentiment. It fell through its 200-day moving average on Tuesday and has lost almost 4% in a dozen sessions.
“You’ve got the perfect storm there for bears,” said Matt Simpson, senior analyst at brokerage City Index. “Fundamentally and technically Aussie/yen looks pretty good with lower oil prices.”