The dollar hit a fresh 2-decade high, stocks in Europe are off to a negative start

European stock markets are expected to open lower Monday, weighed by a deteriorating economic outlook and political uncertainty. Concern about the global growth outlook has been increasing as inflation remains high and central banks resort to aggressive interest rate hikes to tame rising prices.

The dollar index, which tracks the greenback against a basket of six other currencies, climbed to a fresh 20-year high on Monday, making all commodities, including oil and gold, which are denominated in dollars more expensive for foreign buyers. 

Weakening demand and global uncertainly

Dismal business activity data from the Eurozone and the UK last week heightened fears of a regional recession, and investors will look to the release of the German Ifo business climate index for September later in the session for further clues of corporate sentiment in the Eurozone’s largest economy. 

Adding to the region’s woes was the electoral victory in Italy late Sunday of a right-wing alliance led by Giorgia Meloni's Brothers of Italy party, likely giving the country its most right-wing government since World War Two.

Although Meloni, who is set to become Italy’s first female leader, has played down her party's post-fascist roots, there will be a great deal of uncertainty over how she attempts to deal with the growing economic headwinds facing the third-largest economy in the Eurozone given its daunting debt mountain.

Global tension is also mounting over the war in Ukraine, as Russia holds widely-criticized votes aimed at annexing territory it has taken by force. 

Sterling hit an all-time low

The UK stock market could outperform after the British pound hit a record low on Monday in the wake of last week’s unveiling of the country’s biggest package of tax cuts in 50 years to support laggard economic growth. The sterling briefly fell 4% to an all-time low of $1.0382 on Monday in Asia. Critics say those economic measures will disproportionately benefit the wealthy and could see the UK take on high debt levels at a time of rising interest rates.

The fall in the pound illustrates the market’s doubts over the sustainability of such a move, given that the country faces slowing growth and twin deficits. However, it could also help a number of the country’s corporate giants which derive a lot of their revenue overseas, and thus will be boosted by the weak pound when this is repatriated.

Oil prices edged down on recession fears

Oil prices weakened Monday, falling to levels not seen since early January after Japanese business activity data showed manufacturing activity in the world’s second-largest economy grew at a slower pace in September than the prior month. This was also weighed by the surging US dollar and concerns that slowing global economic activity will dent demand for crude.