(Bloomberg) — Stocks in Europe struggled to build on Tuesday’s rally as traders assessed hawkish comments from Federal Reserve Chair Jerome Powell and the latest data on inflation and economic activity.
The Stoxx Europe 600 index was little changed the open, with ABN Amro slumping almost 10% after the Dutch lender reported first-quarter results burdened by rising costs. Siemens Gamesa Renewable Energy SA surged after Bloomberg reported Siemens Energy AG is planning to buy the shares it doesn’t own in its Spanish unit.
US futures dipped after the S&P 500 added 2% in a risk rebound Tuesday. Treasury yields ticked lower and the dollar snapped a three-day losing streak after Powell said the Fed “won’t hesitate” to tighten policy beyond neutral to curb high inflation. MSCI Inc.’s Asia-Pacific equity index rose for a fourth day, the longest such streak since February. Oil held around $113 a barrel and Bitcoin traded near $30,000.
Rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns. Powell said that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. The remarks at a Wall Street Journal live event were some of his most hawkish so far.
“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. 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 gilts declined.
‘Challenging Markets’
Chicago Fed President Charles Evans said he expects the Fed to slow the pace of rate increases to 25 basis-point increments later this year. He anticipates it will complete any 50 basis-point hikes before December.
“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
- The Stoxx Europe 600 was little changed as of 8:29 a.m. London time
- Futures on the S&P 500 fell 0.4%
- Futures on the Nasdaq 100 fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.3%
- The MSCI Asia Pacific Index rose 0.7%
- The MSCI Emerging Markets Index rose 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.3% to $1.0515
- The Japanese yen rose 0.1% to 129.23 per dollar
- The offshore yuan fell 0.3% to 6.7614 per dollar
- The British pound fell 0.6% to $1.2417
Bonds
- The yield on 10-year Treasuries declined one basis point to 2.98%
- Germany’s 10-year yield was little changed at 1.05%
- Britain’s 10-year yield declined two basis points to 1.86%
Commodities
- Brent crude rose 0.8% to $112.78 a barrel
- Spot gold was little changed
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