European Stock Futures Slip Lower; Powell Adds to Recession Concerns

(C) Reuters.

By Peter Nurse – European stock markets are expected to open lower Thursday, with risk sentiment fragile given mounting fears that aggressive interest rate hikes by the Federal Reserve will result in a global recession.

At 02:00 AM ET (0600 GMT), the DAX futures contract in Germany traded 0.3% lower, CAC 40 futures in France dropped 0.3% and the FTSE 100 futures contract in the U.K. fell 0.3%.

European equity indices have received a weak handover from Asia, while U.S. stock futures are also lower following the first day of U.S. Federal Reserve chair Jerome Powell’s two-day testimony to Congress.

Powell said that the Federal Reserve is “strongly committed” to bringing down inflation, adding that a recession is “certainly a possibility. It is not our intended outcome at all”.

The Fed chair also declined to rule out a 100 basis-point rate hike when the central bank next meets in July, saying he would not take any specific size of rate hike “off the table”.

“The narrative in financial markets seems pretty clear. Inflation needs to be addressed and given that supply-side factors show no signs of easing, central banks are going to have to take the steam out of demand by tightening monetary policy,” said analysts at ING, in a note. “Whether that slowdown turns into a soft-landing or a recession remains to be seen.”

Adding to the concerns in Europe is the ongoing war in Ukraine, the associated sanctions on Russian crude, and a surge in gas prices as Moscow reduces its supply.

German Economy Minister Robert Habeck is scheduled to make a statement later Thursday on “energy and supply security” as the country adjusts to the prospect of running out of Russian gas.

Elsewhere, investors will carefully study June’s Eurozone preliminary services and manufacturing purchasing managers’ index data for clues on how the region is weathering the difficult economic conditions.

Oil prices weakened Thursday, continuing the recent selloff on concerns the monetary tightening by the Federal Reserve to curb rampant inflation will prompt a sharp economic slowdown in the U.S., the largest consumer of crude in the world.

Additionally, President Joe Biden called on Congress to pass a three-month suspension of the federal gasoline tax to help combat record prices at the pump.

Wednesday’s U.S. crude supply data from the American Petroleum Institute showed a build of 5.6 million barrels for the week ended June 17.

The U.S. Energy Information Administration‘s weekly oil data will be delayed until at least next week due to systems issues.

By 02:00 AM ET, U.S. crude futures traded 1.4% lower at $104.69 a barrel, while the Brent contract fell 1.2% to $110.38. Both benchmarks fell around 3% in the previous session, dropping to their lowest levels since mid-May.

Additionally, gold futures fell 0.1% to $1,836.50/oz, while EUR/USD edged higher to 1.0566.

European Stock Futures Slip Lower; Powell Adds to Recession Concerns