LONDON: Stock markets tumbled on Tuesday as traders tracked a strengthening dollar, high oil prices, political impasse in Germany and US debt concerns.
Brent crude oil briefly jumped above $80 per barrel for the first time in almost three years on expectations for surging demand and concerns about tight supplies as the world slowly emerges from the pandemic crisis.
Wall Street drifted lower, with tech shares hit hard as Treasury Secretary Janet Yellen urged Congress to quickly raise the debt ceiling to keep the US government operating.
“A combination of fears that China is cooling, and rising government yields have prompted traders to sell stocks,” said David Madden, market analyst at Equiti Capital, as the Dow Jones index lost two percent mid-session and the tech-heavy Nasdaq shed 2.5 percent.
“The prospect of higher energy prices, fuelling inflation, and rises in bond yields that appear to be pre-empting tighter monetary policy by central banks, have prompted widespread selling across global stock markets,” said Chris Beauchamp, analyst at IG.
There were “few safe havens,” he said.
Analysts attributed disproportionate declines in tech stocks to rising treasury yields, as higher interest rates generally hit tech companies because of their greater reliance on debt to fund growth.
“Technology stocks came under heavy selling pressure early Tuesday as investors looked at a combination of uncertainty on Capitol Hill, coupled with all but certainty that borrowing costs will increase,” said JJ Kinahan, chief market strategist at TD Ameritrade.
Republicans in Washington have blocked a Democrat move to raise the US borrowing limit, meaning the government will likely run out of cash at the end of the week.
The country could default on its debt obligations next month, which most observers say would spark a massive financial crisis, with Republicans saying they will refuse to pay for Democrats’ spending plans.
The brewing crisis comes as Democrats fight to pass US President Joe Biden’s multi-trillion-dollar infrastructure and social spending bills, with party infighting fuelling concerns that the president’s agenda could end up stillborn.
Germany, Europe’s biggest economy, was in focus as it headed for weeks, if not months, of protracted coalition haggling following weekend elections.
Both the German DAX and French CAC indexes were down by about two percent, while London was off 0.5 percent.
Chancellor Angela Merkel’s conservatives have insisted on trying to form a government even after losing to the Social Democrats in a tight race.
– Energy crunch –
In Britain, army tanker drivers were put on standby to deliver petrol as the country battles a fuel crisis.
The British pound dipped more than one percent against the dollar to $1.3531, the lowest level since January.
Bank of England governor Andrew Bailey hinted Monday that the central bank would refrain from aggressive monetary policy tightening despite elevated inflation.
“The pound took a pounding after governor Bailey implied that the BoE will not aggressively tighten its belt, as the UK is facing stagflation risks,” ThinkMarkets analyst Fawad Razaqzada told AFP.
China was also facing an energy crunch, with Goldman Sachs lowering its annual growth forecast for the world’s second-biggest economy.
China has also been in the spotlight over concerns about the possible collapse of troubled Chinese developer Evergrande.
– Key figures at 1600 GMT –
New York – Dow: DOWN 1.4 percent at 34,367.98
London – FTSE 100: DOWN 0.5 percent at 7,028.10 points (close)
Frankfurt – DAX: DOWN 2.1 percent at 15,260.70 (close)
Paris – CAC 40: DOWN 2.2 percent at 6,505.50 (close)
EURO STOXX 50: DOWN 2.4 percent at 4,065.09
Tokyo – Nikkei 225: DOWN 0.2 percent at 30,183.96 (close)
Hong Kong – Hang Seng Index: UP 1.2 percent at 24,500.39 (close)
Shanghai – Composite: UP 0.5 percent at 3,602.22 (close)
Euro/dollar: DOWN at $1.1679 from $1.1700 at 2050 GMT on Monday
Pound/dollar: DOWN at $1.3535 from $1.3704
Euro/pound: UP at 86.29 pence from 85.35 pence
Dollar/yen: UP at 111.34 yen from 110.01 yen
Brent North Sea crude: DOWN 1.1 percent at $78.63 per barrel
West Texas Intermediate: DOWN 0.9 percent at $74.78 per barrel
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