European stocks followed Asian peers lower Monday as concern over inflation, higher rates and recession intensified before earnings season kicks off.
The Stoxx Europe 600 slipped 0.4% at 8:05 a.m. in London. US futures ticked lower, with contracts on the S&P 500 and Nasdaq 100 dropping about 0.3%. Semiconductor stocks fell after fresh US curbs on China’s access to American technology.
All eyes are turning to US inflation data due Thursday. The potential for a hotter-than-expected reading heaps pressure on policy makers to extend jumbo-sized rate hikes beyond this year. Strong US labor data solidified wagers for a fourth straight increase of 75 basis points next month.
Fed officials have been resolutely hawkish in their message that they won’t be deterred from raising rates by volatility in financial markets or the threat of an economic downturn. Minutes of the latest Fed policy meeting arrive on Wednesday and may provide more insight into the central bank’s pain threshold.
“Given the magnitude of tightening that it is attempting to atone for past errors, the Federal Reserve is ill-equipped to handle the process and bring the economy to a soft landing,” Komal Sri-Kumar, President of Sri-Kumar Global Strategies, wrote in a note to clients.
Meanwhile, the Bank of England stepped up its measures to support market functioning as its emergency gilt buying measures entered their final week.
The UK central bank said it will increase the size of its buying operations for the next five days to a maximum of £10 billion ($10.8 billion), from £5 billion previously. At the BOE’s previous operations it has bought around £4.6 billion in total, about 12% of the £40 billion on offer.
Oil eased as risks to energy demand stemming from tighter monetary policy halted a rally triggered by OPEC+’s decision to cut supply. Gold extended a decline in Asia after plunging below the $1,700 an ounce mark last week.
A gauge of Asian equities dropped by more than 1% amid fresh US curbs on China’s access to American technology.
The dollar fluctuated versus its Group-of-10 counterparts. Goldman Sachs Group Inc. strategists warned the strength of the US currency poses a risk to earnings season, given American companies generate 30% of revenues overseas.
“Everything that we see indicates that we’re in some kind of recessionary environment as of the third quarter and we’ll get a lot more of that as companies announce over the next couple of weeks,” Jonathan Garner, chief Asia and emerging markets strategist at Morgan Stanley, said on Bloomberg Television.