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Central banks warned of more pain after hiking rates this week
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Dollar erases weekly loss; Treasuries fall across curve
U.S. equity-index futures dropped with European stocks amid concern the resolve of central banks to continue their fight against inflation will tip the economy into a recession. Contracts on the S&P 500 and Nasdaq 100 fell at least 1.1% each after the underlying indexes posted their biggest declines since Nov. 2 on Thursday. Europe’s Stoxx 600 slid to a five-week low. The dollar erased a weekly loss and Treasuries dropped across the curve. Oil trimmed a weekly gain. Adobe Inc. rose in premarket New York trading after reporting better-than-estimated earnings. An index of global stocks headed for a weekly slide as the Federal Reserve and the European Central Bank reaffirmed rates will go higher for longer until inflation fell back to their targets. While that belied market expectations for a lower peak rate and potential rate cuts in 2023, it also clouded the growth outlook. Economists now see a 60% probability of recession in the US and an 80% chance in Europe. Equity analysts have cut 12-month earnings estimates for the regions to the lowest levels since March and July, respectively. “The worrying aspect for markets is the rate hike finishing lines are still unknown, and we have the two most dominant central banks in the world climbing the mountain into very restrictive territory,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “Hiking interest rates into a dimming macro environment will undoubtedly trigger a recession. The question is just how profound.”
Europe’s equity benchmark fell for a third day, dragged by growth-sensitive sectors such as real estate, technology and financial services. The benchmark of Asian equities posted the first weekly decline since October. The MSCI ACWI Index, the global equities gauge, headed for a 1.4% retreat this week. Treasuries fell, with yield curves steepening. The two-year rate added 2 basis point, while the 10-year yield was 5 basis points higher. In Europe, both UK gilts and German bunds tumbled after ECB President Christine Lagarde delivered an unambiguously hawkish message, disabusing markets of any bets for a slowdown in rate hikes. Ann-Katrin Petersen, senior investment strategist at BlackRock Investment Institute, said on Bloomberg Television that central banks were starting to acknowledge they will have to crush growth and will likely engineer recessions to tame inflation. Traders were also digesting poor US retail sales and manufacturing data, even as the labor market remained strong. Meanwhile, the dollar edged higher, building on Thursday’s gains. Oil dropped on Friday, trimming the biggest weekly gain since early October on signs of tightening supply and the prospect for improved Chinese demand. NN: You can expect a lot of chop. BUT this market is doomed. It has not prices in yet a mild recession. Never mind the full blow depression the global deleveraging will cause.