European stocks and US equity futures fell on Tuesday as the euro hit its weakest level against the dollar in two decades as fears intensified over the health of the global economy .
The regional Stoxx Europe 600 stock index lost 0.8%, after opening higher, while the FTSE 100 fell 1.2%. In Asia, Hong Kong’s Hang Seng closed 0.1% higher, paring earlier gains, while mainland China’s CSI 300 fell 0.1%.
In a sign of deteriorating sentiment about growth prospects, the euro fell 1.2% against the dollar to $1.0296 – its lowest point since 2002.
Guilhem Savry, head of macro and dynamic allocation at Unigestion, suggested that markets needed to fall further. “The recession theme has made a comeback,” he said. “Although markets are now beginning to price in a cooling of inflation and hawkish central bank policy, we have yet to reach equity market lows where we would be comfortable re-engaging risk.”
Futures on Wall Street’s S&P 500 and Nasdaq 100 fell 0.6 and 0.7 percent as U.S. markets were set to reopen after a holiday on Tuesday.
In government debt markets, the yield on the 10-year German Bund – considered a proxy for borrowing costs in the eurozone – fell 0.07 percentage points to 1.27%. The two-year short-term yield slipped 0.12 percentage points to 0.51%. Bond yields fall as their prices rise.
Yields on Bunds and Treasuries had risen earlier this year as the European Central Bank and US Federal Reserve signaled aggressive interest rate hikes and the planned withdrawal of major bond-buying programs in order to fight galloping inflation.
The Fed raised its benchmark rate by 0.75 percentage points in June, its largest increase since 1994.
But in recent weeks, investors have scaled back their expectations of higher borrowing costs from the world’s most influential central bank in the coming months amid mounting evidence of an economic slowdown. .
Details of the Fed’s latest monetary policy meeting, due out on Wednesday, could give further clues as to how much the central bank is willing to tighten monetary policy. A closely watched U.S. jobs report on Friday will also signal the level of heat in the country’s labor market, a yardstick that could also influence Fed decision-making.
The S&P closed higher on Friday, its last trading day before the long weekend, and bond markets rallied after a dismal report on the US industrial sector heightened concerns about the economic outlook.