European stocks drop with yields on rising recession risk

Bloomberg

European stocks retreated and bond yields tumbled as comments by Federal Reserve Chair Jerome Powell and growth data in Europe stoked fear about a global dowturn. Oil extended losses.
The Stoxx Europe 600 Index slipped about 1%, with miners and energy firms posting the biggest declines. Contracts on the Nasdaq 100 flipped to gains from losses while those on the S&P 500 wavered. The yield on German 10-year bonds sinks 17 basis points after an indicator of euro-area economic activity fell to a 16-month low. Treasury yields falls 8 basis points toward 3%.
Powell accepted that steep rate increases could trigger a US recession, and said the task of engineering a soft economic landing is “very challenging” in testimony to the Senate Wednesday. Policy makers are taking drastic steps to cool inflation at a four-decade high and the Fed chair repeated his
resolve to get consumer price growth back down to 2% target.
“The reaffirmation of the Fed’s commitment to bringing inflation down and that recession is a risk are adding to growth worries, which is the dominant fear again,” said Esty Dwek, chief investment officer at Flowbank SA.
Traders are now debating how far the Fed will stretch its rate cycle in the face of an economic downturn. Money markets indicate diminished odds the central bank will raise rates after the November policy meeting.
The Federal Reserve “is well served by keeping some hawkishness there,” Steven Major, global head of fixed income research at HSBC Holdings Plc, said in an interview with Bloomberg Television. “Because if they appear that they’ve reached the peak, then financial conditions will loosen and the policy won’t work. So they need a couple more months of this.”
In commodities, West Texas Intermediate crude dropped to around $104 a barrel, sapped by fears over the demand outlook. A raw-materials index is at the lowest since March. Bitcoin climbed back above $20,000, while gold dipped.
The combination of growing recession fears and the highest nominal yields for a decade or more are luring investors back to global bonds after sizzling inflation fuelled a record rout. Pacific Investment Management Co. this week joined those signalling the worst may be over for bonds, saying the surge in Treasury yields is “restoring value,” especially with the
likelihood of an economic
contraction increasing.