Global stock markets fall on concerns over Pelosi’s visit to Taiwan

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Global stocks were mostly weaker on Tuesday as a planned visit by US House Speaker Nancy Pelosi to Taiwan prompted threats from Beijing.

European stocks were mostly lower in early trading, after benchmarks ended mostly lower in Asia.

The French CAC 40 slipped 0.5% in early trading to 6,406.15, while the German DAX DAX,
+1.17%
lost 0.7% to 13,388.26. the British FTSE 100 UKX,
+0.57%
was little changed, rising less than 0.1% to 7,416.42. The future of the S&P 500 ES00,
+0.10%
lost 0.6% while that of the Dow Industrials YM00,
+0.05%
lost 0.4%.

China considers Taiwan its own territory and has repeatedly warned of “serious consequences” if the reported trip to island democracy continues. Pelosi said she is traveling to Singapore, Malaysia, South Korea and Japan for talks on a variety of topics, including trade, COVID-19, climate change and security.

Although there was no official announcement, local media in Taiwan reported that Pelosi will arrive on Tuesday evening, making her the highest ranking American to visit in more than 25 years.

“Sentiment of risk has taken a hit following reports suggesting that US House Speaker Pelosi is due to continue her visit to Taiwan. Investors will likely look for defensive positions as the geopolitical situation may worsen over the next few days,” said Anderson Alves of ActivTrades.

The Japanese reference Nikkei 225 NIK,
+0.69%
fell 1.4% to 27,594.73. Kospi 180721 from South Korea,
+0.47%
slipped 0.5% to 2,439.62. Hang Seng HSI from Hong Kong,
+2.06%
fell 2.5% to 19,675.87, while the Shanghai Composite SHCOMP,
+0.80%
plunged 2.3% to 3,186.27.

“The first great relief will be Pelosi’s safe arrival in Taiwan, followed by his safe departure. Neither side wants a real war, but the risk of an accident or even the escalation of a war game aggressive is real, which could always lead to a tactical error,” said Stephen Innes, managing partner at SPI Asset Management.

Australian S&P/ASX 200 XJO,
-0.01%
edged up 0.1% to 6,998.10.

The Reserve Bank of Australia on Tuesday raised its benchmark interest rate for a fourth consecutive month to a six-year high of 1.85%. It was the third straight increase of half a percentage point. When the central bank raised the rate by a quarter of a percentage point at its monthly board meeting in May, it was the first rate hike in more than 11 years.

The cash rate is now at its highest level since May 2016, when the bank cut the rate from 2% to 1.75%.

On Wall Street, stocks gave up early gains and closed slightly lower as investors entered another busy week of corporate earnings and economic reports. The S&P 500 SPX gave up an early gain to end down 0.3% at 4,118.63. The Dow Jones Industrial Average DJIA fell 0.1% to 32,798.40 and the Nasdaq COMP fell 0.2% to 12,368.98.

Bond yields have mostly fallen. The 10-year Treasury yield TMUBMUSD10Y,
2.702%,
which influences mortgage rates, fell to 2.60% from 2.65% on Friday evening.

August’s subdued open follows a strong rally in stocks last month: July was the best month for the S&P 500 index since November 2020. Stocks fell for much of the year as investors worried about high inflation and rising interest rates. A major concern remains whether central banks will raise interest rates too aggressively and push economies into recession.

A report released last week showed the US economy contracted in the last quarter and could be in recession. The recent rally in stocks came as worrying economic reports gave some investors confidence that the Fed can slow its aggressive pace of rate hikes sooner than expected.

More than half of S&P 500 companies have released their latest results, most of which were better than expected. Many companies have also warned that inflation is hurting consumer spending and squeezing operations. Companies have raised their prices to try to maintain their profits.

Wall Street will also receive several updates on the labor market, which has remained strong. The Labor Department will release its June job openings and labor turnover survey on Tuesday and its closely watched monthly jobs report for July on Friday.

A spike in oil prices throughout the year only compounded the impact of inflation. U.S. crude oil prices have risen about 25% in 2022, pushing U.S. gasoline prices to record highs.

In currency trading, the US dollar fell slightly to 130.79 Japanese yen USDJPY,
-0.06%
from 131.71 yen. The euro USDEUR,
-0.08%
costs $1.0239, down from $1.0259.

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