(Bloomberg) — U.S. equity futures slipped, signaling Wall Street’s recovery may stall as traders assess hawkish comments from Federal Reserve Chair Jerome Powell. Treasury yields ticked lower and the dollar snapped a three-day losing streak.
Contracts all major US benchmarks were down after the S&P 500 added 2% in a risk rebound Tuesday. Powell said the Fed “won’t hesitate” to tighten policy beyond neutral to curb high inflation, fueling fears that higher rates and surging inflation may drive the economy into a recession.
The Stoxx Europe 600 index stalled after a three-day rally, with corporate news in focus. ABN Amro slumped almost 10% after the Dutch lender reported first-quarter results burdened by rising costs. The energy sector outperformed as Siemens Gamesa Renewable Energy SA surged after Siemens Energy AG said it may offer to buy the shares it doesn’t own in its Spanish unit. Oil rose toward $114 a barrel and Bitcoin slipped below $30,000.
Rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns. In what’s seen as his most hawkish remarks to date, Powell said that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat.
“We’ll have this kind of volatility as people jump in and look at opportunities to buy as markets decline,” Shana Sissel, director of investments at Cope Corrales, said on Bloomberg Television, referring to the Wall Street bounce. The Fed is going to struggle to achieve a soft economic landing, she added.
The latest data from Europe didn’t offer any reassurance. New-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Yields on most European bonds ticked higher as traders upped bets on European Central Bank tightening.
Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank. The pound weakened and gilt yields fell as traders speculated that the Bank of England will struggle to rein in inflation and avoid a recession.
‘Challenging Markets’
“This is one of the most challenging markets I have been in in my career,” Henry Peabody, fixed income portfolio manager at MFS Investment Management, said on Bloomberg Television. “I suspect at a certain point of time we’re going to have the liquidity of the markets challenged. They really haven’t been thus far.”
Elsewhere, the Biden administration is poised to fully block Russia’s ability to pay US bondholders after a deadline expires next week, a move that could bring Moscow closer to a default. Sri Lanka, meantime, is on the brink of reneging on $12.6 billion of overseas bonds, a warning sign to investors in other developing nations that surging inflation is set to take a painful toll.
What damage will be done to the US economy and global markets before the Fed changes tack and eases policy again? The “Fed Put” is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
What to watch this week:
- G-7 finance ministers and central bankers meeting Wednesday
- Eurozone, UK CPI Wednesday
- Philadelphia Fed President Patrick Harker speaks Wednesday
- China loan prime rates Friday
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.2% as of 6:20 a.m. New York time
- Futures on the Nasdaq 100 fell 0.4%
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 was little changed
- The MSCI World index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0528
- The British pound fell 0.6% to $1.2420
- The Japanese yen rose 0.2% to 129.11 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 2.97%
- Germany’s 10-year yield advanced one basis point to 1.06%
- Britain’s 10-year yield declined four basis points to 1.84%
Commodities
- West Texas Intermediate crude rose 1.4% to $113.94 a barrel
- Gold futures were little changed
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