Asian stocks have slipped and the US dollar stood by a two-decade high on the euro as investors’ fears deepened that the continent is leading the world into recession, while oil and European equity futures attempted to steady after a slide.
Brent crude futures bounced 1.4 per cent in morning trade to $US104.18 a barrel, nursing its wounds after a 9.5 per cent drop to a two-and-a-half month low on Tuesday, with worries a global growth slowdown is going to sap demand.
MSCI’s index of Asia-Pacific stocks outside Japan fell 0.6 per cent, while Japan’s Nikkei fell 0.88 per cent, on course for its first loss of the week.
S&P 500 futures fell 0.2 per cent, though Euro STOXX 50 futures bounced 1.8 per cent.
Hong Kong’s Hang Seng index was down 0.42 per cent while Chinese blue chips fell 0.7 per cent, dragged by worries about new COVID-19 cases in Shanghai risking fresh restrictions.
Overnight Europe’s STOXX 600 index dropped two per cent and the euro plunged more than 1.5 per cent to $US1.0236, its lowest since late 2002, as talk of gas rationing spooked traders.
“The drumbeat is getting louder and louder about recession risk,” Jason Teh, chief investment officer at Vertium Asset Management in Sydney, said.
“Right now defence is the name of the game. It’s the best strategy, because in a recession a lot of things can fall out of bed.”
Uncertainty over Europe’s gas supply has sent prices rocketing.
Benchmark Dutch gas prices have doubled since the middle of June and rose seven per cent overnight to a four-month high.
Year-ahead baseload power in Germany hit a record high.
Investors are nervous about continuity of supply after the Nord Stream pipeline, which carries Russian gas to Germany, shuts for 10 days for planned maintenance from July 11.
In Tokyo, shares of commodities trading firms Mitsui and Mitsubishi dropped more than five per cent after former Russian president Dmitry Medvedev threatened oil and gas supply cuts to Japan.
Sterling was also pinned by a two-year low, not helped by the latest political crisis to hit Prime Minister Boris Johnson’s government, with the resignation of his finance and health secretaries raising questions over his longevity as leader.
After touching $US1.1899 overnight the currency steadied at $US1.1964 in Asia.
A change in leader, or speculation about it, could lend support but it is weighed heavily by an economic outlook a new prime minister is unlikely to shift.
“The UK is in danger of being the slowest-growing major advanced economy next year, with the highest inflation rate and the biggest current account deficit,” Societe Generale strategist Kit Juckes said.
“That’s quite a collection, and it represents a clear threat to the pound.”
Elsewhere the US dollar also stood tall, holding the risk-sensitive Antipodean currencies near two-year lows and dunking spot gold prices to their lowest this year.
The Australian dollar was last huddled at $US0.6810 having slid one per cent overnight to a two-year trough of $US0.6762.
Spot gold was last steady at $US1,771 an ounce after its overnight fall. Safe-haven gold is down about three per cent this year, less than the steep losses for equities and bonds.
Investors now await the release of US payroll data on Friday for further signs of whether the economy may fall into a recession.
“A strong payrolls figure may temper recession fears briefly, though it will also likely drive up two-year yields and probably won’t be regarded as unambiguously positive by the equity investment community,” ING’s Robert Carnell and Iris Pang wrote in a note.
Benchmark US treasury yields were flat on Wednesday, with the 10-year note at 2.8218 per cent.
Bitcoin fell back below the key $US20,000 waterline, falling 2.77 per cent to trade at $US19,855.14.