(Bloomberg) — US equity futures and European stocks meandered in cautious trade, with investor attention focused on how aggressive the European Central Bank will be in the fight against inflation when it announces its interest rate decision later.
(Bloomberg) — US equity futures and European stocks meandered in cautious trade, with investor attention focused on how aggressive the European Central Bank will be in the fight against inflation when it announces its interest rate decision later.
Wall Street contracts were little changed following a near-2% advance in the S&P 500 and Nasdaq 100 on Wednesday. Europe’s Stoxx 600 Index surrendered an initial 0.6% advance as retailers slumped after a profit warning from Primark-owner Associated British Foods Plc.
The pound rose as UK Prime Minister Liz Truss outlined a plan to provide relief on rising energy costs to British households and businesses, which she said is expected to curb inflation. There has been widespread speculation that the government’s aid proposals will require further debt sales to fund it that could drive up bond yields.
A dollar gauge was steady as traders assessed comments from Federal Reserve officials on their commitment to fighting inflation. Treasuries gained, with the 10-year yield falling to 3.22%.
Central banks are walking a tightrope, moving sharply to tackle price pressures while remaining leery of sparking a damaging economic contraction in the process. The ECB takes center stage later, with Bloomberg Economics predicting a 75 basis points rate increase to front-load tightening even as the region grapples with an energy crisis.
“What we are seeing in Europe is very, very concerning, what is happening there is the worst energy crisis we have seen since the oil embargo in 70s,” Ryan Lemand, Securrency Capital advisor to the board, said on Bloomberg Television. “Europe will face a recession, one of the worst recessions it will have faced and I don’t think risky assets are pricing this in correctly.”
Fed officials reiterated their determination to get inflation under control. Vice Chair Lael Brainard said interest rates will need to rise to restrictive levels, while cautioning risks would become more two-sided in the future. Chair Jerome Powell is due to speak later on Thursday.
Goldman Sachs Group Inc. economists lifted their forecast for the pace of Fed interest rate increases, expecting the Fed to hike by 75 basis points this month and 50 basis points in November, up from previous forecasts of 50 basis points and 25 basis points respectively. They are tipping a 25 basis points move in December.
The Fed’s Beige Book report said US economic expansion prospects were weak, while adding that price growth showed signs of decelerating.
Risks to Stocks
US stocks could slide a further 25% if the economy tips into a recession, with risks to a sustained equity rally mounting, according to Deutsche Bank AG strategists. With company profits set to drop, stock valuations still high and recession risk looming, the fundamental picture for stocks is challenging, the strategists said.
In Asia, a gauge of the region’s stocks rebounded from the lowest level since 2020. The yen rose after a meeting of senior Japanese officials to discuss the currency’s slide.
Elsewhere, oil trimmed a sharp slide this week sparked by demand risks from monetary tightening and China’s Covid travails — the megacity of Chengdu extended a weeklong lockdown in most downtown areas.
Gold futures gained, while Bitcoin held above the $19,000 level.
What to watch this week:
- European Central Bank rate decision, Thursday
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
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Some of the main moves in markets:
Stocks
- Futures on the S&P 500 were little changed as of 7:47 a.m. New York time
- Futures on the Nasdaq 100 fell 0.1%
- Futures on the Dow Jones Industrial Average were little changed
- The Stoxx Europe 600 fell 0.1%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro rose 0.2% to $1.0026
- The British pound rose 0.2% to $1.1559
- The Japanese yen rose 0.3% to 143.36 per dollar
Bonds
- The yield on 10-year Treasuries declined four basis points to 3.22%
- Germany’s 10-year yield was little changed at 1.58%
- Britain’s 10-year yield declined one basis point to 3.02%
Commodities
- West Texas Intermediate crude rose 0.3% to $82.20 a barrel
- Gold futures rose 0.5% to $1,736.20 an ounce
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