Stocks dropped in Europe and US equity futures fluctuated as investors assessed prospects for aggressive central bank monetary tightening and as a dollar gauge climbed to a record.
(Bloomberg) — Stocks dropped in Europe and US equity futures fluctuated as investors assessed prospects for aggressive central bank monetary tightening and as a dollar gauge climbed to a record.
Europe’s Stoxx 600 Index fell 0.6%, with tumbling miners leading the declines. Utilities jumped on news of a European Union power-price cap proposal. Contracts on the S&P 500 and Nasdaq 100 edged higher before the market hears from a slew of Federal Reserve speakers. In premarket trading, UiPath Inc. tumbled after the application software company’s weaker-than-expected revenue forecast. Gitlab Inc. rose after boosting its revenue guidance.
Greenback strength stoked by higher Treasury yields and worries about the economic outlook is rippling across the world, leading to tighter financial conditions that could further undermine risk assets.
Bets on another 75 basis points Fed interest-rate hike to tackle high inflation have spurred a selloff in Treasuries. Traders are bracing for a European Central Bank rates decision due on Thursday, with the potential for a similar-size move.
Aside from tightening monetary settings and an apparently unstoppable dollar, markets are also contending with a debilitating energy crisis in Europe and Covid lockdowns in China. Concerns are growing about the outlook for company earnings given the various global economic headwinds.
“Many investors are walking on egg shells,” Kristina Hooper, chief global market strategist at Invesco, said on Bloomberg Television. “The real issue is that it could be a one-two punch. We could see the Fed continuing to pummel the economy with a significant rate hike, lets say 75 basis points, and then of course we get downward revisions to earnings that are significant.”
Oil erased a decline after Russian President Vladimir Putin underlined that his country won’t supply oil and fuel if price caps on the country’s exports are introduced. Bitcoin flirted with a test of lows for the year and gold recovered to trade above $1,700 an ounce.
European policymakers are pulling together proposals to bring to a meeting of energy ministers in Brussels on Friday where emergency interventions will be hammered out to address the region’s energy crisis. Meanwhile, Deutsche Bank AG Chief Executive Officer Christian Sewing warned Wednesday that Germany won’t be able to avert a recession.
While global stocks are on pace for their worst run since the European debt crisis a decade ago, Goldman Sachs Group Inc. strategists are among those warning that more selling is possible. The MSCI All Country World Index is in its longest losing stretch since 2011 and rapidly erasing a bounce from mid-June that a Goldman team led by Peter Oppenheimer described as a “bear market rally.”
“We expect further weakness and bumpy markets before a decisive trough is established,” the strategists wrote.
What to watch this week:
- Apple event due to feature new iPhones, watches, Wednesday
- Bank of England Governor Andrew Bailey at Treasury Committee, Wednesday
- Fed’s Beige Book of regional economic activity, Wednesday
- Cleveland Fed President Loretta Mester due to speak, Wednesday
- European Central Bank rate decision, Thursday
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
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Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.5% as of 10:57 a.m. London time
- Futures on the S&P 500 rose 0.2%
- Futures on the Nasdaq 100 rose 0.3%
- Futures on the Dow Jones Industrial Average rose 0.1%
- The MSCI Asia Pacific Index fell 1.3%
- The MSCI Emerging Markets Index fell 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $0.9909
- The Japanese yen fell 0.9% to 144.12 per dollar
- The offshore yuan fell 0.3% to 6.9893 per dollar
- The British pound fell 0.3% to $1.1489
Bonds
- The yield on 10-year Treasuries declined four basis points to 3.31%
- Germany’s 10-year yield declined six basis points to 1.57%
- Britain’s 10-year yield declined eight basis points to 3.02%
Commodities
- Brent crude rose 0.8% to $93.55 a barrel
- Spot gold rose 0.3% to $1,706.41 an ounce
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