European stocks dip at open after Fed warns recession “a possibility”
European stocks dipped on Thursday morning as markets digested comments from the Federal Reserve that a recession is “certainly a possibility” and await data on the performance of the European economy.
The regional Stoxx 600 index lost 0.6 per cent in morning trading, while the FTSE 100 lost 0.9 per cent and Germany’s Dax index lost 0.4 per cent.
Fed Chair Jay Powell told US lawmakers on Wednesday that it was becoming more challenging for the central bank to tackle inflation while maintaining a strong job market.
Despite reassuring markets that the US economy remains strong, Powell’s comments led to a dip in US stocks on Wednesday night, with the S&P 500 ending the day down 0.1 per cent. Futures tracking the S&P 500 on Thursday morning were down 0.15 per cent.
Energy stocks were among US companies to suffer on Wednesday. The prospect of a recession pushed the price of Brent crude futures, the international benchmark, 1.6 per cent lower to $110 a barrel.
In Asia, Hong Kong’s Hang Seng index gained 1.6 per cent, after Chinese state media reports of extended tax exemptions for buyers of electric vehicles buoyed stocks in the sector. Japan’s Topix index was flat.
Economic data will provide further indications of health of the European economy on Thursday. Markets await the publication of purchasing managers’ indices, which measure business confidence, across Europe. The European Central Bank also publishes its monthly economic bulletin.
Overnight the yield on the 10-year US Treasury note, which underpins pricing for global debt, fell 0.12 percentage points to 3.16 per cent. At the open in Europe the 10-year Bund yield fell 0.04 percentage points to 1.57 per cent, according to data from Tradeweb. Bond yields move inversely to prices.
In the US, Powell will appear again before lawmakers for a second day of testimony on Thursday.
Latest figures on US inflation showed it had reached 8.6 per cent in the world’s largest economy and Powell said the Fed needed to see “compelling evidence” that inflation was moderating before it relented on its drive to increase interest rates.