Risk-off sentiment dominates the markets

With the prospect of further tightening by central banks, renewed COVID outbreaks in China, and Europe's energy shortages unnerving investors on Tuesday, global equity markets tumbled, oil declined, and the euro edged closer to parity with the safe-haven dollar.

A growing number of reports of infections in Shanghai, along with the seven-day ban in Macau announced earlier this week, have resulted in concerns that the growth prospects for Q3 will not be V-shape. There is also a likelihood that China's Q2 GDP numbers will disappoint this week. 

There is a possibility that Tuesday's European markets will be negative after yesterday's Wall Street slump led to more significant weakness in Asia markets.  

There is a risk-off sentiment dominating global markets at the moment. In a move that gives a fair indication of the skittish nature of the current sentiment, US bond yields fell back, reversing a lot of their Friday gains, with the 10-year yield falling back below 3%. A sell-off on Wall Street prompted investors to buy safe-haven Treasuries, lowering the yield on benchmark 10-year Treasury notes to 2.9595%.

The dollar index, which measures the currency against a basket of six peers, climbed to 108.44, reaching a high not seen since October 2002. The dollar is the most widely used currency as an international reserve currency. Consequently, when there is a recessionary risk or a sharp increase in volatility, the greenback is the currency that people rush to because it is the most secure of all. 

Events of today

Tuesday's highlight will be the German ZEW survey for July, which is expected to show a sharp decline following a modest improvement in June.

Given the continued rise in energy costs, as well as the lack of signs that some of its key export markets will rebound, it is forecast that the expectations survey will fall to -38.3, from -28. At the same time, the current situation is predicted to slide to -34.5 from -27.6.

Investors will be busy with a bunch of macroeconomic reports on Tuesday, which will attempt to give them a better idea of the big picture in the economic outlook. As part of these reports, we expect to see the latest OPEC monthly report, which will contain the latest demand and supply statistics. The EIA will also publish its short-term energy outlook. Investors are also looking to the EU economic forecast to get a sense of financial policies' direction.