The euro hits a 20-year low and U.S. bonds flash a warning sign as economic fears mount.

The euro fell to a 20-year low against the U.S. dollar on Tuesday, as fears about the European economy weighed heavily on the currency. It was one of several signs of renewed economic worries around the world, which were also reflected in stocks wobbling, bonds flashing warning signals and oil prices falling sharply.

The S&P 500 rose slightly on Tuesday, recovering from a much deeper slide earlier in the day.

The yield on the U.S. 10-year Treasury note, an important gauge of borrowing costs, dipped below the two-year yield, which traded at about 2.8 percent. The so-called inverted yield curve is a rare phenomenon that often happens ahead of a recession.

Economists have recently been raising the possibility of a recession in their forecasts. Interest rates in the United States have experienced their largest increase since 1994, inflation is at its highest in 40 years, and financial markets set grim records in the first half of the year.

In Europe, energy industry turmoil and the war in Ukraine are weighing heavily on the region. Germany reported its first monthly trade deficit since 1991. Supply chain strains are expected to slow the eurozone’s largest economy, which is heavily dependent on exports, and may even cause a recession. “Overall, we think the outlook is deteriorating precipitously,” Daniela Ordonez of Oxford Economics wrote in a note Tuesday about the eurozone economy.

Another sign of anxiety about global growth was seen in the price of oil. Brent crude oil, the international benchmark, fell more than 9 percent on Tuesday, to $103 per barrel, its biggest daily decline since March. West Texas Intermediate, the U.S. benchmark, fell nearly as much, dropping below $100 per barrel for the first time since May.

The euro’s decline brought it closer to parity with the dollar, with one euro trading for about $1.027, its lowest level since 2002. Many analysts have said it is only a matter of time before the euro reaches a one-to-one exchange rate with the dollar, as European economies struggle with high inflation, labor unrest and turmoil in energy markets.

“Europe is the weakest link in the global economy,” said Joe Quinlan, head of market strategy for Merrill and Bank of America Private Bank. “They’re in the cross hairs of the war and the energy crisis.”

Russia has been steadily restricting the supply of natural gas to Western Europe, which German officials have described as an economic attack in retaliation for sanctions and military support for Ukraine, raising the specter of gas rationing if things get worse. Then, this week, energy workers in Norway, another crucial supplier of gas in Europe, went on strike over pay, restricting supplies further and pushing up gas prices.

A potential “power crunch” led Jordan Rochester, a currency strategist at Nomura Securities, to forecast that the euro would hit parity with the dollar by August, he wrote in a report on Tuesday, with Germany’s large manufacturing base particularly at risk.

To tame the highest inflation since the euro was created in 1999, the European Central Bank is expected to raise interest rates for the first time in more than a decade at its meeting this month.

But as the eurozone’s economic outlook darkens, investors are concerned that the E.C.B. has moved too late, and may not have much time to raise rates before a recession forces it to change course. There are growing predictions that the eurozone economy could slip into recession, especially if energy supplies continue to be disrupted.

The Federal Reserve is expected to remain more aggressive in raising rates as it tries to cool economic growth and rein in inflation, which would make holding assets denominated in dollars more attractive than ones in euros, on top of the worries about the prospects for the eurozone economy.

“With the growth outlook softening further it seems the window for E.C.B. hikes may be closing even faster than previously anticipated,” Dominic Bunning, head of foreign exchange research at HSBC, wrote in a research note on Tuesday. That, he said, “adds up to a weak outlook” for the euro.

The euro’s slide makes imports more expensive for people and businesses in the 19 countries that use the currency, adding to the region’s inflationary woes. It also reduces the value of European sales for American companies, presenting “one more variable that investors have to be aware of on the downside for earnings,” Mr. Quinlan of Merrill and Bank of America Private Bank said.

The six months through Thursday were the U.S. stock market’s worst first half of a year since 1970, with the S&P 500 peaking in early January and dropping nearly 21 percent through June. The sell-off was broad: Every sector except energy was down. The second half of the year is off to a similarly bleak start.

Eshe Nelson contributed reporting.

Source link

Latest

Myanmar court convicts Suu Kyi on more corruption charges

Bangkok: A court in military-ruled Myanmar convicted the country’s...

Instagram and Facebook are stalking you on websites accessed through their apps

Social media platforms have had some bad press in recent times,...

Should you buy a DSLR camera?

The DSLR vs mirrorless debate is a very thoroughly...

Newspaper front pages from around the world, 15 August 2022

Here are the news stories that made the front...

If the Job Market Is So Good, Why Is Gig Work Thriving?

Under this approach, while offering the flexibility of gig work, the staffing agencies usually serve as the employer and administer benefits. Workers are paid...

Japan Bounces Back to Economic Growth as Coronavirus Fears Recede

TOKYO — Restaurants are full. Malls are teeming. People are traveling. And Japan’s economy has begun to grow again as consumers, fatigued from more...

I Was Skeptical of Baby Gear. Then I Became a Dad.

As annoying as it made me, I liked knowing about baby gear. My wife liked me knowing about baby gear. And I found, to...