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Global stocks dropped Tuesday due to China's energy crisis, which caused a drop in global stock prices. This poses a threat to the supply of goods.
Brent crude oil's price soared to $80 per barrel due to a shortage of natural gas and a natural gas squeeze.
US stocks were under pressure due to rising Treasury yields. Techs are particularly vulnerable.
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As investors weighed the impact of China's energy crisis on global supply, stocks traded lower Tuesday. However, oil continued to gain and US bond yields rose at multi-month highs.
After ending Monday in the red, futures on the Dow Jones fell 0.5% and those on S&P 500 dropped 0.9%. As of 6:10 AM, the Nasdaq was down 1.5%. ET suggests a later start to trading.
Rising bond yields had a negative impact on US equity, particularly technology stocks. They are sensitive to rising yields as higher debt costs could hinder their growth.
The 10-year Treasury yield rose 4.1 basis points to 1.525% at its peak in four months.
The electricity crisis in China, which initially affected factories, has now spread to homes. Already, production has been slowed at many Chinese factories, including those of Apple and Tesla suppliers. This has sparked concerns about a China-wide manufacturing shortage that could lead to global supply chains and drive prices higher.
Nomura and Goldman Sachs overnight revised their projections for China's economic growth by 2021.
Analysts said that China's energy issues are contributing to Tuesday's gains in oil prices. They also pointed out that there is a global shortage of natural gas. They suggested that natural gas demand should be pushed into oil as an alternative.
Brent crude oil prices rose to $80 per barrel, a record high for the past three years. However, they have slowed to $79.43 per barrel, 0.8% more than before. West Texas Intermediate rose 1.06% to $76.25 per barrel.
Jeffrey Halley, Oanda's senior market analyst, stated that the driver is what appears to be China's growing energy shortages. With winter still not here, Asian buyers are competing with Europeans for spot gas supplies and, now, I suspect, oil supplies.
The yields on the US Treasury rose as investors refocused their attention on the impact of higher inflation on the likelihood that the Federal Reserve raises interest rates next year. They also began to reduce bond purchases in November as expected.
John Williams, the New York Fed President, indicated Monday that US economic growth was strong enough for him to start tapering bond purchases. However, Williams said that a rise in interest rates from their near-zero levels would take time. Minneapolis Fed President Kashkari stated that this year's rise in US inflation is a result of COVID-19 supply disruptions, and policymakers shouldn't react too soon.
The Senate Banking Committee will hear testimony from Jerome Powell, Fed Chair. He stated that supply bottlenecks are increasing inflation and will likely continue to rise in the coming months.
Halley of Oanda said that "all eyes will be on further signals a firming up tapering expectations, but I expect Powell to remain firmly in team transitory."
Asian equity markets had an initial session Tuesday that was disappointing, but the majority of major regional indexes closed higher.
The Shanghai Composite was up 0.5% while Hong Kong's Hang Seng gained 1.07% while Tokyo's Nikkei fell 0.2%.
Investors in Europe continued to evaluate the German election results and the looming shortage of gas. London's FTSE 100 lost 0.6%. The pan-European Euro Stoxx 50 fell 1.4% and Frankfurt's DAX dropped 0.9%.
Gold fell 0.6% to $1,740 per ounce. The dollar index climbed 0.2% to 93.57.
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