Dollar prevails as investors fear recession pain

TOKYO/SINGAPORE (Reuters) – Asian stocks fell and the dollar held a two-decade high against the euro on Wednesday as investor fears deepened that the continent was leading the world into recession, while oil and European stock futures rose. An oscillating attempt at stability.

Brent crude futures fell this month on fears that the global slowdown could dampen demand. Prices fell 9.5% to a two-and-a-half-month low of $101.10 on Tuesday, before rebounding slightly to $103.86 a barrel in the Asian trading session on Wednesday.

MSCI Asia Pacific Index Outside Japan (.MIAPJ0000PUS.) It fell 1%, led by a 2% drop for Taiwan’s benchmark index (.twii) Heavy with growth-sensitive computer chip makers — which hit an 18-month low. Japan’s Nikkei Index (.N225) It fell 1.1%.

S&P 500 futures slipped 0.1% while FTSE and EuroSTOXX 50 futures rose 1% after heavy selling on Tuesday.

The news has been relentlessly negative, with talk of gas rationing in Europe, a political crisis in Britain and a new outbreak of COVID-19 cases leading to new restrictions in Shanghai. Read more

In the US, the two-year Treasury yield has fallen below the 10-year yield, a reliable market signal of a medium-term growth-limiting stagnation.

“The drums are getting louder and louder regarding recession risks,” said Jason Teh, chief investment officer at Vertium Asset Management in Sydney.

“Defending now is the name of the game. It’s the best strategy now, because in a recession a lot of things can fall out of bed.”

Accordingly, the dollar was king and the offer of safety returned to the crumbling Japanese yen. The US dollar index reached a 20-year high of 106.79 on Tuesday, buoyed by a drop in the euro.

The index hovered at 106,440 on Wednesday, and the yen rose about 0.4% to 135.39 per dollar.

The euro is trading at $1.0266 after dropping to $1.0236 on Tuesday and traders should expect a little relief. Selling could follow if Eurozone retail sales figures due at 0900 GMT disappoint expectations for a 0.4% monthly gain in May.

“There are no significant support levels for the EUR/USD even $1,” said Christina Clifton, chief strategist at Commonwealth Bank of Australia.

The British pound approached a two-year low of $1.1944 after the resignations of two senior British government ministers put Prime Minister Boris Johnson’s leadership under fresh pressure. Read more

GAS GAS GAS

Uncertainty over gas supplies in Europe is driving the latest round of concerns, and has driven prices up sharply in the face of declines in other commodities due to growth concerns.

Dutch benchmark gas prices have doubled since mid-June.

Some investors are concerned that the flow along the Nord Stream pipeline, which brings gas from Russia to Germany, may not resume after a ten-day maintenance halt from July 11, and that winter supply shortages will then lead to rationing and a sharp decline in economic activity. .

The background is high interest rates.

The Federal Reserve will release minutes later Wednesday from its June meeting, where it announced the highest increase in the benchmark interest rate in the United States in nearly 30 years. Likely to portend further increases as Federal Reserve officials have said their top priority is to fight inflation, even at the expense of growth.

“The potential for a soft landing has declined significantly,” August Hatek, co-head of UBS Wealth Management Asia Pacific, told investors at a conference in Singapore. The growth-sensitive Australian dollar stalled near a two-year low of $0.6805.

Spot gold last settled at $1,771 an ounce after slipping on the strong dollar overnight. The safe haven is down about 3% this year, less than the steep losses for stocks and bonds.

Treasuries in Asia settled with a 10-year yield at 2.8327% and a 2-year yield at 2.8385%. Bitcoin, which was demolished in flight from a risky asset, settled at $20,115.

Sam Byford reports. Editing by Sam Holmes and Kim Coogill

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