Investors are awaiting the start of the second-quarter earnings season to learn how US companies are coping with inflation and a slowing economy.
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Global shares fell on Tuesday ahead of key US inflation data, weighed down by a growing belief that raging price pressures, persistent COVID outbreaks, and a slowing economy will lead to recession.
The dollar flirted with 20-year lows against the euro and 24-year lows against the yen, which dented stocks and commodities alike.
The MSCI All-World index of global shares was down 0.5%, while futures on the S&P 500, Dow Jones and Nasdaq 100 fell between 0.5-0.6%, suggesting Monday's weakness may extend into a second day.
Adding to the nervousness is the start of the second-quarter earnings season, which kicks off this week in earnest.
"The US CPI report will be the main highlight tomorrow, but we shouldn't forget the start of the Q2 earnings season either, which will shed some light on how corporates are faring as the market narrative has flirted with the view that the US economy might already be in a recession," Deutsche Bank strategist Jim Reid said.
The June consumer inflation report is due on Wednesday and is expected to show another pickup. Economists forecast a reading of 8.8%, versus May's 8.6% pace, which would open the way for yet more large interest-rate hikes by the Federal Reserve, which is now balancing the need to control inflation with the risk of causing recession by doing so.
Market-based inflation expectations have subsided over the past few weeks, indicating that investors believe that the central bank will be successful in its quest to contain price pressures, but perhaps less so in preventing a full-on economic slowdown.
The dollar has been a major beneficiary, both of the angst around the global economy, which has unleashed safe-haven flows, but also from the steep rise in US rates. On Tuesday, the greenback was within a hair's breadth of sending the euro below $1 for the first time in 20 years. The single currency was last down 0.4% at $1.00029.
In Europe, Russia has temporarily all but shut off flows of natural gas to the region, which has raised the risk of a broad-based recession.
"Although a recovery ensued very late into the end of the week, the downtrend in euro/dollar remains intact, and I see few reasons why a full blown test/break of parity won't occur over the coming weeks," NatWest Markets FX strategist Neil Parker said in a note.
The STOXX 600 dropped 0.4%, while in Frankfurt, the DAX dropped 0.7% in early trade, and London's FTSE 100 fell 0.3%. Overnight in Asia, regional stocks fell to their lowest in two years, as a swathe of new lockdowns and curbs on business activity in China to stem the spread of COVID-19 stoked concern about the impact to the economy.
The Shanghai Composite dropped almost 1%, while Tokyo's Nikkei fell 0.7% and Seoul's Kospi lost 0.9%.
With investor concern about the prospect for economic growth gathering pace, oil broke a three-day rally. China's lockdowns have partially offset constraints on supply side, tempering gains above $100 a barrel over the last few weeks. The country is the world's largest energy importer and any slowdown in manufacturing activity could put a serious dent into the demand outlook.
Brent crude futures were last down 2% at $104.90 a barrel, bringing total losses for the last month to 15%, while WTI crude was down 2.1% at $101.78 a barrel.
"A rise in Covid cases in Shanghai will not be helping sentiment, particularly given that China continues to pursue its zero-Covid policy, which creates a fair amount of demand risk for the market," ING strategist Warren Patterson said.
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