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North American Morning Briefing: Stock Futures Slump on Recession Worries

MARKET WRAPS

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Canada CPI for May

Opening Call:

Stock futures tumbled Wednesday, eating into a good chunk of the previous session's gains, as investors went back to worrying that the Federal Reserve's aggressive plans to tighten monetary policy could lead the U.S. into a recession.

Jerome Powell will appear before the Senate Committee on Banking, Housing, and Urban Affairs just as the markets open Wednesday.

The Fed has been raising interest rates in a move to cool historically high inflation, which has led to fears on Wall Street that the central bank's effort will lead the U.S. to an economic downturn. The S&P 500, despite the gains Tuesday, has declined 21% this year.

"The bounce in U.S. stocks after Monday's holiday shows signs of being short-lived given that there was no major data out to support an ongoing buying spree," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"U.S. futures point to a lower open for Wall Street, an indication that pessimism is seeping back into investor sentiment about the Fed's ability to cool down inflation without inducing a cold shock for the U.S. economy."

Lawmakers will be pressing Powell on Wednesday, and again on Thursday when he faces the House Financial Services Committee, about inflation and the growing threat of a recession.

Read Barrons.com: Powell Goes to Capital Hill Today. Here's What to Watch.

Overseas, the pan-continental Stoxx Europe 600 declined 1.5% while major indexes in Asia closed with losses.

Forex:

The dollar was higher in Europe as investors digested remarks from the Fed's Thomas Barkin, signaling further substantial interest rate hikes and awaited Jerome Powell's testimony before Congress.

"It does not seem the Fed considers the 21% year-to-date decline in the S&P 500 as representing anything being broken and the Fed's current rhetoric is that the U.S. economy can handle higher rates," said ING.

Expect this message to be communicated again at Powell's testimony, ING added.

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Sterling edged lower after data showed U.K. inflation accelerated moderately in May, but undershooting market expectations.

Inflation climbed to an annual rate of 9.1% in May from 9% in April. Economists polled by the WSJ expected inflation to reach 9.2%.

"The modest rise in inflation...won't prevent the Bank of England from raising interest rates further, but it may encourage it to opt again for a 25 basis points rate hike at its next meeting in August rather than upping the ante with a 50bps hike," said Capital Economics.

Read Barrons.com: Bitcoin, Other Crypto Assets Retreat as Volatility Reigns

Energy:

Oil prices fell around 5% in European trade, as fresh concerns about tightening monetary policy and recession risks battered risk assets. Investors remain on edge about rising interest rates, which threaten to tip the global economy into recession.

"What was thought to be the ultimate hedge sees energy investors running for the exits as global policymakers get inspired to drive energy prices lower," wrote Stephen Innes, Managing Partner at SPI Asset Management.

Read from the IEA:

Rising Cost of Clean Energy Materials Adds Headwinds for Uptake

Oil-And-Gas Windfall Should Be Invested in Clean Energy

Metals:

Gold futures stretched their losses into a third trading session, as investors bought the dollar and Treasurys on persistent worries over inflation.

"Despite the noise of the past week, [gold] remains anchored in the middle of its one-month range," said OANDA's Jeffrey Halley, putting resistance at $1860 and support at $1805.

SPI's Stephen Innes referred to gold as "the unsinkable Molly Brown" despite a 40 basis point rise in Treasury real yields, which would "typically be worth at least $75 an oz decline."

   
 
 
   
 
 

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(MORE TO FOLLOW) Dow Jones Newswires

June 22, 2022 04:47 ET (08:47 GMT)

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