Stocks, Futures Fall on Pervasive Economic Fears: Markets Wrap

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

The Stoxx Europe 600 Index retreated 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. Haven assets including the dollar, Treasuries and the yen 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. Fears about the economy spread to commodities, putting oil in line for a monthly loss.

“Markets are flip-flopping between recession fears and inflation fears,” Paul Donovan, chief economist at UBS Global Wealth Management, said in a note. “Today it is recession fears.”

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.

Reflecting the gathering jitters about the impact of tighter US monetary policy, veteran investor Ray Dalio warned that reducing inflation would only come at great cost.

West Texas Intermediate tumbled to $104 a barrel, with prices falling alongside other raw materials including copper. Concerns about a broad economic slowdown are eclipsing the fallout from the war in Ukraine and signs of still-tight supply.

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 1.6% as of 9:38 a.m. London time
  • Futures on the S&P 500 fell 1.7%
  • Futures on the Nasdaq 100 fell 1.9%
  • Futures on the Dow Jones Industrial Average fell 1.5%
  • The MSCI Asia Pacific Index fell 1.7%
  • The MSCI Emerging Markets Index fell 2.2%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro fell 0.2% to $1.0508
  • The Japanese yen rose 0.2% to 136.29 per dollar
  • The offshore yuan fell 0.5% to 6.7225 per dollar
  • The British pound fell 0.6% to $1.2205

Bonds

  • The yield on 10-year Treasuries declined four basis points to 3.24%
  • Germany’s 10-year yield declined eight basis points to 1.69%
  • Britain’s 10-year yield declined nine basis points to 2.57%

Commodities

  • Brent crude fell 4.1% to $109.96 a barrel
  • Spot gold fell 0.5% to $1,824.39 an ounce

©2022 Bloomberg L.P.

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