Europe is heading for a mildly weaker start, extending losses from the previous session as Fed Chair Powell adds to recession concerns.
· PMI data in Europe & UK to show a deceleration in growth
· US jobless claims are expected to hold steady around a 3-month high
· Oil extends losses on recession fears and as Russia’s oil re-routes away from Europe
Bourses in Europe erased early gains yesterday to finish in the red. While Wall Street pared early losses to finish almost positive, even after Federal Reserve Chair Jerome Powell warned that a recession was certainly possible. All in all, Jerome Powell came across slightly less hawkish than in the FOMC meeting last week, resulting in the USD falling and stocks rising from session lows.
The market has been fretting that aggressive rate hikes by the Federal Reserve could tip the US economy into a recession. According to the CME FedFund watch the US central bank is expected to hike rates by 75 basis points in July and a further 50 basis points in September. Meanwhile, Citigroup predicts a 50% probability of a recession.
PMIs
Today the FTSE is heading for a -0.3% fall on the open after losses of 0.9% yesterday. The DAX is heading for a -0.2% drop on the open after closing 1.1% lower yesterday.
In the European session, the focus will be squarely on PMI data for the region. The UK and the eurozone PMIs are expected to show activity growth moderating across the board but remain above the all-important 50 level, which separates expansion from contraction. UK services PMI will be particularly under the spotlight after falling from 58 in April to 53.4 in May, a notable deceleration. The services PMI in June is expected to be 53, signs weakness could hurt risk sentiment and also drag on the pound, which is already down 10% against the USD this year.
Looking ahead
Looking ahead to the US session, in addition to the US composite PMI, which is expected to buck the trend and tick higher to 53.7, jobless claims will also be in focus. Jobless claims have been starting to head higher in recent weeks, hitting a three-month high and raising concerns that weakness could be slowly seeping into the labour market. Claims are expected to ease slightly to 226k from 229k.
Fed Chair Powell will testify again today to US lawmakers. This time he fronts the House Financial Services Committee. After a few revelations yesterday, including that a ‘soft landing’ is looking increasingly challenging, expectations that he will bring anything new to the table are fairly low.
Oil
Oil prices tumbled over 3% yesterday and are falling again today as the commodity market continues to call out a recession. Concerns over the demand outlook are rising as the Fed looks set to hike rates aggressively in the US, the world’s largest consumer of oil. Concerns over tight supply also appear to be easing as Russia reroutes its trade towards other countries outside of Europe. China’s crude oil imports from Russia were up 55% in May compared to a year earlier. EIA stockpile data which was due to be released today has been delayed until next week owing to a system difficulty.
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