US equity-index futures and European stocks declined after stubborn US inflation bolstered the case for more aggressive monetary tightening by the Federal Reserve. Contracts on the S&P 500 slid at least 0.5% after the index on Wednesday hit the lowest level since March 2021. Futures on the Nasdaq 100 lost 0.9%. Treasuries rose on demand for safe haven. A sell-off in cryptocurrencies boosted risk sentiment.
Hotter-than-expected US inflation reading has revived concerns of a 75 basis-point rate increase by the Fed, rather than the 50 basis-point pace that markets have come to grips with. Worries about the impact of rising rates on economic growth, combined with the war in Ukraine and slowing Chinese demand amid Covid lockdowns, are battering risk assets.
The dollar rose on Thursday against all of its Group of 10 peers, except the Japanese yen. The gains took Bloomberg's gauge of the greenback's strength to the highest level since May 2020. Meanwhile, Treasuries rallied across the curve, with the 10-year rate shedding 10 basis points.MSCI Inc.'s index of world stocks is heading for a sixth week of losses, the longest since 2008."We're seeing the beginning of the capitulation and the great reset, if you want, in pricing," Virginie Maisonneuve, global chief investment officer for equity at Allianz Global Investors UK, said. "Right now the big question is peak inflation."European natural gas prices have jumped on concerns about supplies from Russia via Ukraine.
European stock indices continue to drop following the US ones, signalling a continuation of the trend:
Events to watch this week:
- San Francisco Fed President Mary Daley speaks on Thursday
- US Consumer Price Index, initial jobless claims, Thursday
- University of Michigan Consumer Sentiment, Friday