August 12, 2022

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Euro is about to break parity, stocks are falling again

Euro is about to break parity, stocks are falling again

LONDON (Reuters) – The euro tumbled into parity with the dollar on Tuesday and stock markets fell as the possibility of further central bank tightening and concerns about the health of economies around the world unnerved investors.

The dollar’s role as a safe haven for investors worried about the economic outlook has been weighed down in recent weeks, with the US currency rising to its highest levels in two decades against multiple currencies.

The euro has been particularly weak given the impact of the continued rise in natural gas prices on the regional economy and the war in neighboring Ukraine, and with the European Central Bank pulling back from rivals in raising interest rates.

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By 0725 GMT, the euro was down 0.3% to a low of $1.0004, its weakest level in more than 20 years.

The dollar index rose 0.3 percent to 108.48, while the pound hit a two-year low and the yen was not far from its weakest level in more than two decades.

Mizuho analysts said the move toward parity is happening because “a recession in the eurozone is priced in,” and said the background suggests little to improve risk sentiment.

“Either way, there appears to be little to prevent the euro-dollar break-even in the relatively near term,” they wrote.

The focus for this week will be on macro data including US consumer inflation on Wednesday, and comments from Federal Reserve officials as investors look for clues on the outcome of the Fed’s upcoming policy meeting ahead of the pre-meeting blackout period.

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The higher inflation reading may add pressure on the Fed to increase its already aggressive pace of rate hikes.

In the stock markets, Euro STOXX (.stoxx) It fell 0.7%, while Germany’s DAX fell (.GDAXI) It fell 0.8% and the British FTSE 100 (.FTSE) by 0.44%.

US futures markets also pointed to a weaker open.

MSCI’s broadest index of Asia Pacific shares outside Japan (MIAPJ0000PUS.) It fell 1.3% to a two-year low, while Japan’s Nikkei fell (.N225) He lost 1.8%.

Also topping the list of investor concerns is the fact that a growing number of Chinese cities, including mall Shanghai, are adopting new COVID-19 restrictions as of this week to curb new infections after a highly transmissible Omicron variant was found. Read more

The rising cost of energy in Europe is also a major concern as the largest single pipeline carrying Russian natural gas to Germany has entered its annual maintenance period, with flows expected to stop for 10 days.

Investors are concerned that the war in Ukraine could extend the shutdown, further restricting European gas supplies and pushing the faltering eurozone economy into recession. Read more

The yield on the benchmark 10-year Treasuries was 2.92%, after falling below 3% overnight as investors bought into safe-haven Treasuries amid a sell-off on Wall Street.

Growth concerns were also weighing on oil, despite concerns about tight supply.

Brent crude futures fell 2.2% to $104.73 a barrel, while US West Texas Intermediate crude recorded $101.53 a barrel, down 2.44%.

Gold was flat, with spot prices trading at $1,735 an ounce.

Cryotcurrency prices are down, with Bitcoin last down 1.4% at $19,770.

Additional reporting by Zhe Yu in Hong Kong. Editing by Jean Harvey

Our criteria: Thomson Reuters Trust Principles.