Global equities, oil prices slide on rising concerns of pandemic in EU

Global equity benchmarks and oil prices drifted lower on Tuesday while safe haven assets gained as an extended economic lockdown in Germany and US and European sanctions on China curbed risk appetite worldwide.

Rising concerns over a third wave of the coronavirus pandemic amid slow vaccine rollouts in Europe hit oil and travel companies as investors priced in a longer road to recovery.

Germany extended its lockdown until April 18, while Chancellor Angela Merkel called on citizens to stay at home for five days over the Easter holidays.

US crude fell 4.04% to $59.07 per barrel and Brent was at $61.77, down 4.41% on the day.

Energy stocks were also under pressure, with Chevron Corp , Occidental Petroleum Corp and Exxon Mobil Corp shedding 1.5% or more, while travel-related stocks fell as much as 4%.

“Global travel is still looking like it could be a while away,” said Matt Stanley, a fuel broker at Star Fuels in Dubai, adding that a second-half recovery in oil demand looked doubtful as lockdowns remain the order of the day.

MSCI’s gauge of stocks across the globe shed 0.40% following broad declines in Europe and Asia.

In morning trading on Wall Street, the Dow Jones Industrial Average fell 63.65 points, or 0.19%, to 32,667.55, the S&P 500 lost 4.32 points, or 0.11%, to 3,936.27 and the Nasdaq Composite added 0.96 points, or 0.01%, to 13,378.50.

Benchmark 10 year Treasury yields gained ahead of Congressional testimony by Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen later in the day that may shed light on the pace of economic rebound from the pandemic.

In remarks prepared for delivery to the hearing on Tuesday morning, Powell said the U.S. economic recovery had progressed “more quickly than generally expected”.

“The FOMC last week laid out pretty clearly what the Fed’s view is with regard to rates ... the next thing that markets will focus on is maybe getting some details from Yellen with regard to further infrastructure investment,” said Alex Wolf, head of investment strategy for Asia at J.P. Morgan Private Bank, referring to a statement from the Federal Open Market Committee.

Adding to market concerns were human rights sanctions on China imposed by the United States, Europe and Britain that prompted retaliatory sanctions from Beijing.

Worries over the pace of the recovery from the pandemic were also heightened after a US health agency said the AstraZeneca Plc vaccine developed with Oxford University may have included outdated information in its data.

Spot gold dropped 0.3% to $1,733.11 an ounce.

Gold inched up in choppy trading on Tuesday, buoyed by easing U.S. Treasury yields while a firmer dollar capped gains, ahead of testimony from Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen. Spot gold rose 0.1% to $1,739.66 per ounce by 1205 GMT. U.S. gold futures were unchanged at $1,738.70. “The market seems to be struggling, especially at the $1,745 level, a little bit of weakness is coming in on a firmer dollar,” said independent analyst Ross Norman.

But “looking ahead, it’s going to be all about inflation in the second half of this year. And it’ll be far, far hotter than the Fed’s indicating” and gold will perform well then, Norman added.

Making gold expensive for other currency holders, the dollar rose 0.4%, although benchmark U.S. Treasury yields eased, reducing the opportunity cost for holding non-yielding gold. European stocks eased from an one-year peak as a new wave of coronavirus infections and a fresh lockdown in Germany raised fears of a slow economic recovery. Investors were now looking toward the Congressional testimony by Powell and Yellen at 1600 GMT.

The US central bank last week reiterated its pledge to keep its ultra-easy monetary policy stance despite expected inflationary pressure. “Should investors see more runway to challenge the Fed’s outlook and push yields higher, that surge is likely to come at the expense of gold’s upside,” said FXTM market analyst Han Tan. “Gold has all to do to break out of its current downward trend, especially with the recovering dollar standing in its way. Spot gold has to first break above its 50-day simple moving average in order to send a favourable signal to bullion bulls.”

A firm dollar kept most emerging market currencies under pressure on Tuesday, although Brazil’s real stabilized after the central bank minutes showed officials discussing more interest rate hikes. Currencies of oil exporting countries, including Russia’s rouble and Mexico’s and Colombia’s pesos, also took a hit from a near 4% drop in crude prices. Investors globally pulled away from riskier emerging market assets, stocks and commodities after tit-for-tat sanctions between China and the West, as well as new coronavirus lockdowns in Europe that raised fears of a slow economic recovery.

Brazil’s real, however, found support after minutes of the central bank’s March 16-17 meeting showed policymakers were ready to raise rates by another 75 basis points in May to bring inflation back to target this year and keep 2022 expectations from taking off. “In our assessment, the minutes are more hawkish than the post-meeting communique, particularly with regard to the constructive view on activity and decline of slack in the economy...,” Alberto Ramos, head of Latin American research at Goldman Sachs, said in a client note.