Global stocks were mostly lower on Tuesday as an expected visit from US House Speaker Nancy Pelosi in Taiwan prompted threats from Beijing.
European stocks were mostly lower in early trading, after benchmarks ended mostly lower in Asia.
France’s CAC 40 fell 0.5% in early trade to 6,406.15, while Germany’s DAX DAX, +0.74% lost 0.7% to 13,388.26. Britain’s FTSE 100 UKX, +0.47% was little changed, rising less than 0.1% to 7,416.42. S&P 500 futures ES00, -0.01% lost 0.6%, while Dow industrials YM00, +1.24% lost 0.4%.
China views Taiwan as its own territory and has repeatedly warned of “serious consequences” if the alleged trip to the island’s democracy goes ahead. Pelosi has said she is visiting Singapore, Malaysia, South Korea and Japan for talks on a variety of topics, including trade, COVID-19, climate change and security.
While there have been no official announcements, local media in Taiwan reported that Pelosi will arrive on Tuesday night, making her the highest-ranking US elected official to visit in more than 25 years.
“Risk sentiment was hit after reports suggested that US House Speaker Pelosi will continue her visit to Taiwan. Investors are likely to seek defensive positions as the geopolitical situation could escalate over the next few days,” said Anderson Alves of ActivTrades.
Japan’s benchmark Nikkei 225 NIK, +2.62% fell 1.4% to 27,594.73. South Korea’s Kospi 180721, +0.16% fell 0.5% to 2,439.62. Hong Kong’s Hang Seng HSI, +0.46% fell 2.5% to 19,675.87, while the Shanghai Composite SHCOMP, -0.15% fell 2.3% to 3,186, 27.
“The first big flashpoint will be Pelosi’s safe arrival in Taiwan, followed by her safe departure. Neither party wants a real war, but the risk of mishaps or even aggressive escalation of war games is real , which could always lead to a tactical error,” said Stephen Innes, managing partner at SPI Asset Management.
Australia’s S&P/ASX 200 XJO, -0.54% rose 0.1% to 6,998.10.
The Reserve Bank of Australia on Tuesday raised its benchmark interest rate for the fourth consecutive month to a six-year high of 1.85%. It was the third consecutive rise 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 point 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 began another busy week of company earnings and economic reports. The S&P 500 SPX gave up an early gain to finish 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 mostly fell. The 10-year Treasury yield TMUBMUSD10Y, 2.838%,
which influences mortgage rates, fell to 2.60% from 2.65% on Friday afternoon.
August’s subdued open follows a solid rally for stocks last month: July was the best month for the S&P 500 since November 2020. Stocks have fallen for much of the year, already that investors worry about high inflation and rising interest rates. A key concern remains whether central banks will raise interest rates too aggressively and push economies into recession.
A report last week showed that the US economy contracted last quarter and may be in recession. The recent rally in stocks came as troubling economic reports gave some investors confidence that the Fed may slow its aggressive pace of rate hikes sooner than expected.
More than half of the companies in the S&P 500 have reported their latest earnings results, which have mostly been better than expected. Many companies have also warned that inflation is hurting consumer spending and straining operations. Companies have raised prices to try to maintain profits.
Wall Street will also get several updates on the labor market, which has remained strong. The Labor Department will release its June survey of job openings and labor turnover on Tuesday and its closely watched monthly employment report for July on Friday.
The rise in oil prices during the year only worsened the impact of inflation. US crude oil prices have risen by about 25% in 2022 and this has pushed US gasoline prices to record levels.
In currency trade, the US dollar fell to 130.79 USDJPY, up +0.33% from 131.71 yen. The euro USDEUR, -0.01 was at $1.0239, down from $1.0259.
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