Stocks, Futures Fall on Pervasive Economic Fears: Markets Wrap

(Bloomberg) — Stocks in Europe fell along with US futures and Asian equities amid ever-louder warnings that Federal Reserve monetary tightening may lead to an economic downturn. The dollar climbed.

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The Stoxx Europe 600 Index retreated 1.7% while contracts on the Nasdaq 100 extended declines to 2% and those on the S&P 500 also dropped, pointing to a reversal from yesterday’s bounce in the main US stock gauge. Treasuries and the yen — traditional havens along with the greenback — advanced.

Optimism evaporated that policy makers can achieve a soft landing as they navigate a course of aggressive monetary tightening to tame inflation. Fed Chair Jerome Powell is expected to reinforce the commitment to fighting price pressures when he speaks in front of lawmakers Wednesday. In the UK, inflation quickened to a fresh four-decade high.

“Yesterday’s rally in stocks could be another dead cat bounce,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, wrote in a note. “The Fed Chief is expected to reiterate his strong commitment to fighting inflation even if it means a slower economy and a softer jobs market.”

Skepticism abounds about the outlook for risk assets in a year of steep drops across markets. Prognosticators from Morgan Stanley to Goldman Sachs Group Inc. warned stocks may face more losses amid dimming economic prospects.

“The quicker and the higher they need to hike, the higher the probability of a recession,” Christian Nolting, Deutsche Bank International Private Bank chief investment officer, said on Bloomberg Television, referring to monetary policy.

Deutsche Bank is underweight equities and further declines would offer an opportunity to “close the gap to a neutral position because even if there is a recession, it might not be a long lasting one,” Nolting said.

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An Asia-Pacific share index shed over 1%, with Chinese technology equities among the worst performers.

West Texas Intermediate tumbled below $104 a barrel, with prices falling alongside other raw materials including copper.

President Joe Biden plans call on Congress to enact a gasoline tax holiday to cool soaring pump prices and alleviate the pressure on consumers.

How will the second half of this year play out for major asset classes? We are re-running MLIV’s 2022 asset survey from December to see how street views have evolved amid the turmoil and volatility in the past few months. Click here to participate anonymously.

What to watch this week:

• Fed Chair Jerome Powell semi-annual Senate testimony, Wednesday

• Powell US House testimony, Thursday

• US initial jobless claims, Thursday

• PMIs for euro zone, France, Germany, UK, Australia, Thursday

• ECB economic bulletin, Thursday

• US University of Michigan consumer sentiment, Friday

• RBA’s Lowe speaks on panel, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1.7% as of 8:49 a.m. London time

• Futures on the S&P 500 fell 1.8%

• Futures on the Nasdaq 100 fell 2%

• Futures on the Dow Jones Industrial Average fell 1.6%

• The MSCI Asia Pacific Index fell 1.6%

• The MSCI Emerging Markets Index fell 2.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%

• The euro fell 0.3% to $1.0499

• The Japanese yen rose 0.3% to 136.20 per dollar

• The offshore yuan fell 0.5% to 6.7248 per dollar

• The British pound fell 0.8% to $1.2184

Bonds

• The yield on 10-year Treasuries declined six basis points to 3.22%

• Germany’s 10-year yield declined nine basis points to 1.68%

• Britain’s 10-year yield declined 12 basis points to 2.53%

Commodities

• Brent crude fell 4.5% to $109.47 a barrel

• Spot gold fell 0.2% to $1,828.51 an ounce

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