Stocks in Europe and US equity futures struggled for direction amid a debate over the scale of central bank monetary policy tightening needed to fight inflation. 

Europe’s Stoxx 600 Index surrendered initial gains as investors assessed cheaper valuations against the record jump in euro-zone consumer prices reported Tuesday. Among individual moves, bootmaker Dr. Martens Plc surged after its pretax profit beat estimates. Contracts on the S&P 500 and the Nasdaq 100 fluctuated.

European bonds fell and Treasuries extended a decline, pushing 10-year yields closer to 2.9% as traders raised bets on Federal Reserve interest-rate hikes. The dollar advanced against major peers.

Oil rose as investors assessed the future of OPEC+ unity, just as ministers from the group prepare to meet on Thursday to discuss its supply policy for July. Crude advanced about 10% in May, stoking more inflation worries. 

Concerns that central-bank rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility has picked up.

“US markets, and by default, global markets, will still indulge in schizophrenic swings in market sentiment as the FOMO dip-buyers become increasingly frantic in their attempts to pick a cyclical low in equity markets,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific Pte.

Asian equities traded mixed, with stocks climbing in Japan as the yen weakened toward 130 per dollar. A pullback in technology stocks and reopening challenges were a drag in Hong Kong. Sluggish Chinese manufacturing data and the government’s pursuit of Covid Zero weighed on shares and the yuan.

The latest all-time high for euro-zone inflation strengthens the case for the European Central Bank to lift interest rates by a half-point in July, according to Austrian central bank chief and Governing Council member Robert Holzmann. He said a lack of “decisive action” now would risk expectations about the path for consumer prices becoming unanchored, requiring tougher measures later on that could trigger a recession.

President Joe Biden used a rare meeting with Federal Reserve Chair Jerome Powell to declare that he’s respecting the central bank’s independence – while simultaneously shifting responsibility for taming decades-high inflation ahead of the November midterms. The meeting came ahead of US payroll numbers Friday. 

“There are heightened concerns around inflation and where central banks are likely to go trying to combat inflation,” Kristina Hooper, Invesco Advisers chief global markets strategist, said on Bloomberg Radio. “This has gone from just an inflation scare to a growth scare. Uncertainty has grown.”

Citigroup Inc. strategists said that after a difficult first five months of 2022, the pain may not be over yet for global equity markets. The prospect of downward revisions to earnings estimates is the latest headwind to face stock investors, already rattled by runaway inflation and the potential impact of central-bank tightening aimed at controlling it, the strategists led by Jamie Fahy wrote in a note.

In US premarket trading Wednesday, Salesforce Inc. climbed after the cloud-based customer management software company raised its annual profit forecast. ChargePoint Holdings Inc. dropped as analysts noted that the EV charging network firm’s margins came under pressure due to rising costs and supply-chain disruption.

How will markets be affected by the Fed’s quantitative tightening? QT officially starts Wednesday and is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.

Here are some key events to watch this week:

• The Federal Reserve is set to start shrinking its $8.9 trillion balance sheet Wednesday
• The Fed releases its Beige Book report on regional economic conditions Wednesday
• New York Fed President John Williams, St. Louis Fed President James Bullard speak at separate events Wednesday
• OPEC+ virtual meeting Wednesday
• Cleveland Fed President Loretta Mester discusses the economic outlook Thursday
• US May employment report Friday
• The UN’s Food and Agriculture Organization releases its monthly food price index at a time of maximum concern about global supplies on Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.1% as of 10:39 a.m. London time
• Futures on the S&P 500 rose 0.2%
• Futures on the Nasdaq 100 were unchanged
• Futures on the Dow Jones Industrial Average rose 0.4%
• The MSCI Asia Pacific Index fell 0.1%
• The MSCI Emerging Markets Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro fell 0.1% to $1.0721
• The Japanese yen fell 0.6% to 129.39 per dollar
• The offshore yuan fell 0.3% to 6.6968 per dollar
• The British pound fell 0.1% to $1.2586

Bonds

• The yield on 10-year Treasuries advanced two basis points to 2.86%
• Germany’s 10-year yield was little changed at 1.12%
• Britain’s 10-year yield was little changed at 2.10%

Commodities

• Brent crude rose 1.5% to $117.31 a barrel
• Spot gold fell 0.4% to $1,829.77 an ounce

Source by: bloomberg