Wall Street Gives Firm Start to Stocks and Crude Steadies

On Thursday, prospects of a solid start on Wall Street gave European shares the boost they needed from a new low, while investors were weighing the possibility of recession due to hiking interest rates.

Stronger Indexes and Shares

The S&P500 futures climbed by 0.7%, while the tech-heavy Nasdaq futures also recorded gains of 1%. European shares had earlier fallen to a low for the year due to dismal economic data in both France and Germany, but were able to reverse the trend, thanks to stronger US futures.

Crude oil had also made losses earlier but was able to recoup them, while copper was still trading at lows of 16 months, as the red metal was under pressure because of fears of an economic slowdown.

Thursday also saw US government bond yields stay low, as Jerome Powell, the Chairman of the US Federal Reserve, told the Senate Banking Committee that they would continue to hike rates for combating inflation. He also added that economic recession was a possibility. Market analysts said that the chair had also added that money markets were correctly priced, which means that the Fed funds rate is likely to double this year.

At the start of the year, analysts had believed it possible to avoid a recession, but data shows that it is becoming more and more likely.

Market Caution

Analysts further added that markets were turning cautious and investors were relying on cash. In fact, they had surpassed the previous peak seen back in March 2020, when COVID-19 lockdowns had seen markets go into a tailspin.

The largest economy in Europe, Germany also saw a momentum come down sharply at the end of the second quarter. The latest Purchasing Managers’ Index (PMI) showed a loss in momentum and corresponding French figures also highlighted weak activity.

Growth Momentum Slowing Down

Thanks to the data, euro bonds had recorded a sharp decline and analysts said that this was a warning sign. It showed that momentum in growth may be slowing down more quickly and sooner than expected. Crude oil and copper saw their prices fall on the possibility of less demand for building materials and fuel, as consumer spending saw a reduction.

Market analysts said that the commodity that highlighted economic growth was usually copper and now it is down. There was a 0.14% fall recorded in the MSCI European share index, which extended its slide of over 20% in the year. According to experts, a slowdown is coming and the only thing left to determine is to what degree it will occur.

It is apparent that the stock markets have already taken a beaten, so they are already discounted when it comes to a recession. The data shows that the recession is going to be a mild one because markets are already bottoming out and a 5% additional downside could be expected.

Meanwhile, Asian stocks had remained mixed with a 1.2% drop in South Korea and a 1.7% gain in China’s blue-chip, while Japan’s Nikkei was trading flat.