Sunday, 14 August, 2022
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Stocks fall, euro nears dollar parity

Stocks fall, euro nears dollar parity

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HONG KONG: Equities fell Tuesday, along with oil, on fears that central bank moves to fight inflation will spark a recession, while the euro fell towards parity with the dollar as cost-of-living crises loom over the eurozone economy.

Worries about a Covid flare-up in China -- fuelling fears of more lockdowns -- added to the downbeat mood, just as investors prepare for a week of data and earnings that could have huge implications for markets, reports AFP.

Wall Street ended with more losses, with tech firms taking the brunt of the selling on expectations for an extended period of hefty interest rate hikes -- the sector is particularly susceptible to higher borrowing costs.

A forecast-beating US jobs report last week suggested the world's top economy was coping with higher Federal Reserve rates, but it also gave the bank more room to continue lifting -- leading to concerns it could go too far and cause a contraction.

"While the jobs report on Friday highlighted that the US is faring better than the rest in the race to avoid a recession, the rest of the world is sinking under the weight of a cost-of-living crisis and higher interest rates," said OANDA's Craig Erlam.

He added that a recent bounce in stocks had faded "and we now head into earnings season and another week of major economic reports fearful of what may lie ahead".

Tokyo, Shanghai, Hong Kong, Seoul, Singapore, Wellington, Mumbai and Taipei all fell, though Sydney and Jakarta edged up.

London, Paris and Frankfurt were also down at the open.

Bets on a drop in demand caused by a possible recession also hit the crude market, with both main contracts extending Monday's losses. The Fed's sharp rate hikes have sent the dollar soaring, with the euro particularly under pressure as the European Central Bank moves more slowly in tightening monetary policy and the region faces an energy crisis caused by the Ukraine war.

Sanctions on oil imports from Russia and Moscow's warnings that it will shut off gas to Europe have led analysts to predict the eurozone will fall into recession, and pushed the euro to a 20-year low and close to parity with the greenback.

But commentators said that even if the ECB lifted rates more quickly, that would add to the economic pain.

While the single currency picked up slightly after hitting a low of $1.0003, there is a broad expectation that it is a matter of time before the $1.0000 level is breached.

There is a fear that a planned 10-day shutdown of Russia's key Nord Stream 1 gas pipeline for maintenance could be extended by Moscow in retaliation for European sanctions linked to its invasion of Ukraine.

French Economy and Finance Minister Bruno Le Maire warned over the weekend that there is a strong chance Moscow will turn off the taps in the winter.

"The next few weeks could be challenging for Europe, with possibly maximum uncertainty stretching into August," said SPI Asset Management's Stephen Innes.