Stocks in Europe fall 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 Monday’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 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.
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,”
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.
The Stoxx Europe 600 falls 1.6% as of 9:38 am London time and futures on the S&P 500 also drops by 1.7%.
While futures on the Nasdaq 100 sink 1.9%, futures on the Dow Jones Industrial Average also fall1.5%.
The MSCI Asia Pacific Index falls 1.7% and the MSCI Emerging Markets Index also drops by as much as 2.2%.
The Bloomberg Dollar Spot Index rises 0.3% and the euro falls 0.2% to $1.0508.
While the Japanese yen rises 0.2% to 136.29 per dollar, the offshore yuan falls 0.5% to 6.7225 per dollar and the British pound also drops 0.6% to $1.2205.