LONDON (Reuters) – World stocks fell for a third straight day on Tuesday, as a stinging warning came from German chemicals giant BASF about the effects of the global trade war and traders hedged bets on a hefty U.S. interest rate cut later this month.

With global macroeconomic clouds looming and critical policy signals due from U.S. Federal Reserve chief Jerome Powell on Wednesday, the headlines and mood focused on three individual stocks.

Shares in BASF slumped almost 6% in Europe after the German chemicals giant issued what one trader described as a “shocking” profit warning, blaming a global slowdown and trade war between the United States and China.

Deutsche Bank tumbled 4% – having already dropped 5.4% the previous day after it axed 18,000 staff – while Apple’s overnight drop of more than 2% on Wall Street after a broker downgrade dragged the tech sector lower.

“Both from a bottom-up and top-down perspective, equity market valuations appear far too ambitious,” analysts at Morgan Stanley wrote in a note.

It was particularly stark, they said, as the U.S. business cycle was in a downturn and both forward-looking indicators like global PMIs and global trade are now in contraction territory.

“Indeed, companies have begun cutting their 2019 profit forecasts, citing the trade conflict as a reason.”

In the currency markets, the big question remained the potential reaction to the weaker outlook from the world’s top central banks.

U.S. Fed chairman Powell gives a testimony before Congress on Wednesday. Money market futures are still fully pricing in a 25 basis point (bps) cut at the Fed’s July 30-31 meeting, but have almost priced out a larger 50 bps move that had been seen as a real possibility a couple of weeks ago.

The dollar changed hands at 108.78 yen, having risen in the previous session to its highest in more than a month.

The dollar index versus a basket of six major currencies was also a touch higher at 97.432, while the euro dropped as low as 1.1204, its weakest level since mid June.

“It would be pretty disruptive at this stage for Powell to rule out a cut in July or dampen expectations of a cut in July,” said Michael Metcalfe, head of global macro strategy at State Street Global Markets.

“The last few Fed speakers, albeit non-voting speakers, have suggested July is not a done deal… and even now, if you look at economists’ forecasts, there is not a consensus that there will be a move, and yet the market is 100% priced.”

BREXIT FACTOR

Elsewhere, the pound stood at 1.2485, not far from six-month lows of $1.2481 touched on Friday. Britain’s parliament will weigh an amendment later aimed at ensuring it cannot be sidestepped if the next UK prime minister wants to pursue a no-deal Brexit divorce from the European Union.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.4% but pared earlier losses, having traded at its lowest level since June 19.

Chinese blue-chips ended down 0.3%, while Hong Kong’s Hang Seng fell 0.7%. Japan’s Nikkei was the only outlier as gains in a few heavyweights in the index helped it edge up 0.1%.

Apple’s suppliers, such as Murata Manufacturing and Taiyo Yuden, fell 2% and 4%, however, after Rosenblatt Securities cited a “fundamental deterioration” for the U.S. gadget giant over the next 6-12 months.

In Greater China, suppliers from Hon Hai to AAC Tech also lost between 1.4% and 3.1% and in Europe Infineon, ASM and STMicroelectronics slipped about 2%.

Among commodities, oil prices were slightly softer as concerns about whether slowing global growth would hit demand eclipsed tensions over Iran’s nuclear programme.

Brent crude futures fell 0.2% to $64.01 a barrel. U.S. West Texas Intermediate (WTI) crude futures shed 0.4% to $57.46.

Gold prices also ticked lower, as the dollar scaled its multi-week highs. Spot gold was down 0.2% at $1,393.03 per ounce and U.S. gold futures fell 0.3% to $1,395.70 an ounce.

Wall Street futures were 0.4% to 0.6% percent lower.