Stocks in Europe drop after hawkish comments by Fed

Bloomberg

European stocks decline and Wall Street equity futures were steady as investors weighed hawkish comments from Federal Reserve officials and looked towards the release of US inflation data due on Thursday for clarity on the trajectory for interest rates.
The Stoxx Europe 600 Index dropped 0.7%, retreating from an eight-month high as retail and technology stocks led declines. Contracts on the S&P 500 and Nasdaq 100 pared earlier losses. Richard Branson’s Virgin Orbit Holdings Inc. tumbled in US premarket trading after a failed attempt to send Britain’s first satellites into orbit from its own soil.
Traders hoping for a quick end to aggressive rate hikes had a reality check on January 9, when San Francisco Fed president Mary Daly said she expects the central bank to raise rates
to somewhere over 5%. Her
Atlanta counterpart Raphael Bostic said policy makers should hike above 5% by early in the second quarter and then go on hold for “a long time.”
“The same pattern keeps emerging, with investors clinging onto any data which appears to show that the economy is cooling off, only to see their hopes dashed by the policymakers who clearly believe that the inflation-busting job is far from over,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
The inflation report, which will come out almost a week after the latest jobs data showed wage growth has decelerated, will be among the last such readings Fed policy makers will see before their January 31-February 1 gathering.
The Bloomberg Dollar Spot Index was little changed, while Treasury 10-year yields crept higher to 3.55%.
“There has been increasing hope of a softish landing for the US economy — that hope could be punctured if the Fed retains a hard line on rates,” said Russ Mould, investment director at AJ Bell. “All eyes will be on Fed chair Jerome Powell when he addresses a conference on central bank independence in Stockholm. Inflation figures out on Thursday also represent a test for the relative optimism of the markets so far this year.”
In brighter news for European assets, economists at Goldman Sachs said they no longer predict a euro-zone recession after the economy proved more resilient at the end of 2022, natural gas prices fell sharply and China abandoned Covid-19 restrictions earlier than anticipated.
Gross domestic product is now expected to increase 0.6% this year, compared with an earlier forecast for a contraction of 0.1%. Economists led by Jari Stehn warn in a report to clients of weak growth during the winter given the energy crisis, and say headline inflation will ease faster than thought, to about 3.25% by end-2023.
The Stoxx Europe 600 fell 0.7% as of 9:46 am London time and S&P 500 futures fell as much as 0.1%.
While Nasdaq 100 futures were little changed, futures on the Dow Jones Industrial Average fell 0.2%.
The MSCI Asia Pacific Index was little changed and the MSCI Emerging Markets Index drops as much as 0.1%.
The euro was little changed at $1.0738 and the Japanese yen was little changed at 131.90 per dollar.
The offshore yuan was little changed at 6.7880 per dollar and the British pound fell 0.2% to $1.2162.