European stocks dropped with US equity futures after Federal Reserve Chair Jerome Powell acknowledged the risk of a recession. Treasury yields fell and oil slid.
The Stoxx Europe 600 Index slipped more than 1%, with miners and energy firms posting the biggest declines. Contracts on the S&P 500 and Nasdaq 100 fell about 0.5%. Benchmark Treasury yields resumed their slide toward 3%.
Powell accepted that steep rate increases could trigger a downturn, 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 the 2% target.
“We are still in an era where uncertainty is elevated and is expected to remain so for quite a while,” JoAnne Feeney, Advisors Capital Management portfolio manager, said on Bloomberg Television. “It’s risky right now in terms of the forward outlook for the global economy. Recession risk has clearly risen.”
The odds of the Fed’s rate-hiking cycle extending beyond the November policy meeting have diminished sharply as traders continue to price the prospects of a hard-landing and swifter policy reversal next year.
Powell “has acknowledged that rates will continue to increase, but the FOMC committee is cognizant of watching incoming data, suggesting the Fed will not be exclusively on autopilot with tightening,” said Joe Gilbert, portfolio manager for Integrity Asset Management.
In commodities, oil 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.
What to watch this week:
Powell US House testimony, Thursday
US initial jobless claims, Thursday
PMIs for eurozone, France, Germany, UK, Australia, Thursday
ECB economic bulletin, Thursday
US University of Michigan consumer sentiment, Friday
RBA’s Lowe speaks on panel, Friday
Some of the main moves in markets:
The Stoxx Europe 600 fell 1.1% as of 8:30 a.m. London time
Futures on the S&P 500 fell 0.5%
Futures on the Nasdaq 100 fell 0.5%
Futures on the Dow Jones Industrial Average fell 0.5%
The MSCI Asia Pacific Index was little changed
The MSCI Emerging Markets Index was little changed
The Bloomberg Dollar Spot Index rose 0.2%
The euro fell 0.5% to $1.0517
The Japanese yen rose 0.5% to 135.62 per dollar
The offshore yuan was little changed at 6.7075 per dollar
The British pound fell 0.6% to $1.2192
The yield on 10-year Treasuries declined four basis points to 3.12%
Germany’s 10-year yield declined 10 basis points to 1.54%
Britain’s 10-year yield declined eight basis points to 2.42%
Brent crude fell 1.8% to $109.69 a barrel
Spot gold fell 0.2% to $1,834.21 an ounce
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