(Bloomberg) — US stock futures and European stocks fell amid growing fears that the US Federal Reserve and European Central Bank’s decision to raise interest rates further could trigger a recession.
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Contracts on the S&P 500 and Nasdaq 100 each fell at least 0.5% after underlying indexes posted their biggest declines since Nov. 2 on Thursday. New York Fed President John Williams further depressed sentiment on Friday after telling Bloomberg Television that a tight labor market was likely to keep inflation high and justify further rate hikes. Investors also braced for the quarterly triple expiry in equity derivatives, which could amplify market moves.
Europe’s Stoxx 600 slipped to a five-week low. The dollar fluctuated and longer-dated US Treasury bonds fell faster than shorter-dated ones. Oil trimmed a weekly profit.
Risky assets have been in retreat since the Fed and ECB reiterated that interest rates will rise longer until inflation falls back on target. While this belied market expectations for a lower prime rate and possible rate cuts in 2023, it also clouded growth prospects. Economists now see a 60% chance of a recession in the US and an 80% chance in Europe. Equity analysts have cut 12-month earnings estimates for the regions to their lowest levels since March and July respectively.
“We remain very bearish stocks and very bearish cyclicals. Reality will come soon. The good news is behind us – the Fed is almost done, inflation is falling and China is reopening,” said Eric Johnston, head of equity derivatives and cross asset at Cantor Fitzgerald. “The bad news is ahead – delayed negative economic impact from rate hikes, living with a 5% Fed benchmark rate, poor economic growth and job losses, negative earnings revisions and global QT. The risk reward of owning stocks at this level is just terrible.”
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Europe’s equity benchmark fell for a third day, weighed down by growth-sensitive sectors such as real estate, technology and financial services. Both UK Gilts and German Bunds fell after ECB President Christine Lagarde delivered an unequivocally hawkish message, shedding markets from any bets on a slowdown in rate hikes.
A benchmark for Asian equities posted its first weekly decline since October. The MSCI ACWI Index, the global equity index, was headed for a 1.4% decline this week.
Ann-Katrin Petersen, senior investment strategist at BlackRock Investment Institute, told Bloomberg Television that central banks are starting to realize they need to rein in growth and will likely introduce recessions to tame inflation.
Some of the key movements in the markets:
Stocks
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Futures on the S&P 500 were down 1% as of 9:06 am New York time
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Futures on the Nasdaq 100 fell 0.5%
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Futures on the Dow Jones Industrial Average fell 1.1%
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The Stoxx Europe 600 fell 1.2%
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The MSCI World Index fell 2.4%
currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0636
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The British pound rose 0.2% to $1.2198
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The Japanese yen rose 0.6% to 137.01 per dollar
cryptocurrencies
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Bitcoin fell 2.5% to $16,966.12
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Ether fell 4.3% to $1,209.86
Bind
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The 10-year Treasury yield rose 7 basis points to 3.51%
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The 10-year German government bond yield rose 11 basis points to 2.19%
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The 10-year UK government bond yield rose 14 basis points to 3.39%
raw materials
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West Texas Intermediate Crude fell 2.8% to $73.96 a barrel
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Gold futures rose 0.4% to $1,795.10 an ounce
This story was created with the support of Bloomberg Automation.
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