(Bloomberg) — 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.
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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.”
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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.
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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.
Adobe shares rose 4.2% in early New York trading after adjusted fourth-quarter earnings beat expectations. Analysts said the report underscored positive demand for creative design software despite economic uncertainties.
Key events this week:
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 1.1% as of 10:26 a.m. London time
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Futures on the S&P 500 fell 1.3%
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Futures on the Nasdaq 100 fell 1.1%
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Futures on the Dow Jones Industrial Average fell 1.2%
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The MSCI Asia Pacific Index fell 0.7%
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The MSCI Emerging Markets Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0618
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The Japanese yen rose 0.5% to 137.12 per dollar
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The offshore yuan was little changed at 6.9852 per dollar
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The British pound fell 0.2% to $1.2157
Cryptocurrencies
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Bitcoin fell 2.2% to $17,015.5
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Ether fell 4.1% to $1,212.98
Bonds
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The yield on 10-year Treasuries advanced five basis points to 3.50%
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Germany’s 10-year yield advanced 12 basis points to 2.21%
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Britain’s 10-year yield advanced 13 basis points to 3.37%
Commodities
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Brent crude fell 2.6% to $79.11 a barrel
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Spot gold rose 0.2% to $1,780.05 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Rob Verdonck.
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