Europe is heading for a weaker open, following another bloodbath on Wall Street after inflation and growth fears sent stocks tumbling.
· Concerns over widespread inflation and a potential global growth slowdown pull stocks lower
· ECB minutes could shed light on the prospects of a July rate hike
· Oil rises off lows amid hopes that the Shanghai lockdown could end soon
All three leading US indices closed sharply lower yesterday. The Dow Jones booked its largest daily loss since October 2020, plunging 1100 points, and the Nasdaq dropped 4.7% on fears over inflation and the prospect of a recession in the US.
Disappointing earing from major retailers Target and Lowe’s fuelled the selloff as the market weighed up the impact rising input prices have on companies’ profits, making a recession more likely.
The market has remained focused on inflation since 2022 kicked off, but that focus has intensified since the start of the Russian war and given recent CPI prints, it is easy to see why. Yesterday’s data revealed that UK CPI rose to 9% YoY, a 40-year high, Eurozone inflation rose to 7.4% YoY in the same month, a record high, and Canadian CPI hit 6.8% annually, a fresh 30 year high.
Heading towards the open, the FTSE is set to start 0.6% lower while the DAX is pointing to a 0.8% slump, extending the selloff from the previous session, where the FTSE closed 1% lower and the DAX dropped 1.2% in another rough session.
ECB minutes
Looking ahead, the minutes from the latest ECB meeting will be the central focus of the European session. The minutes could shed some light on the likelihood of a July rate hike and come as ECB policymakers have been sounding increasingly hawkish. ECB’s Klaas Knot said, earlier in the week, that he would support a 50 basis point rate hike, and Madis Muller and Olli Rehn have also upped the hawkish commentary.
EUR/USD tumbled 0.77% yesterday, falling back below 1.05. Today the pair is rebounding, thanks in part to the weaker USD. Buyers need to push the price over 1.0560, the 20 SMA, and the weekly high, to continue the rebound.
Later in the session, US jobless claims will be under the spotlight and are expected o hold steady around the 200k mark.
Oil
Oil prices are falling for a third straight session, although the price has risen from session lows on hopes that the Shanghai COVID lockdown will relax soon, boosting the oil demand outlook. Oil prices had slumped 2.5% yesterday after risk sentiment soured and recession fears rose. Slowing global growth inevitably means that oil demand declines.
However, losses in oil remained limited amid the pending EU ban on Russian oil. The proposal still hasn’t been approved as Hungary continues to dig in its heels. However, the deal is expected to be agree upon sooner rather than later, keeping the longer-term bullish trend in place.
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