European Markets Crash as Rate Raises Sentiments
European stocks are expected to fall in the open on Monday; Investor sentiment is dominated by the prospect of future interest rate hikes. The FTSE index opened at 7,273, down 42 points. The DAX is expected to open at 13,547, down 206 points. CAC 40 93 to 6,085. FTSE MIB 370 with data from 22,153 IG.
Monday was expected to see a drop in sentiment in Europe; Since last Friday, the region’s major stock exchanges have closed in hostile areas. Investor sentiment deteriorated; Confirmation by the European Central Bank last Thursday; That it intends to raise interest rates by 25 basis points at its July meeting. Further growth is expected in September, which is determined by the medium-term inflation outlook.
The central bank also raised eurozone inflation expectations significantly; Also reduced the growth forecast. On Friday, U.S. inflation data added to the loss with an expected report on the May Consumer Price Index, which was hotter than expected. U.S. government inflation reached 8.6% per annum; This exceeded the expectations of economists and the previous month.
Overnight, Asian stocks fell on Monday. The region’s significant markets saw sharp losses, and the dollar-yen 135 was moving around. Meanwhile, U.S. stock futures fell on Sunday night. Wall Street is trying to recover from one of the worst weeks of 2022. Monday is not a significant gain or release of data.
IT Stocks and Inflation
Stocks by IT companies were one of the most significant setbacks on June 13th. Concerns about the revenue growth of the sector emerged amid rising inflation in significant markets such as the US and the EU. The Nifty IT Index stood at 3.2 percent; It was low on the Nifty 50 index, which fell by nearly 2.5 percent. The May inflation forecast in the US showed that prices have risen at the fastest pace in more than 40 years, While the US Federal Reserve has raised interest rates by 75 basis points over the past three months.
Higher-than-expected inflation has alarmed investors; They believe this could lead to a more aggressive rise in US Federal Reserve interest rates in future meetings. This could lead to a recession in the US economy in the next 12 months. Russia’s ongoing war in Ukraine in the EU has led to decades of high inflation, which has limited economic activity in the Eurozone.
Economists fear a recent change in the position of the European Central Bank; By aggressively raising interest rates from September, The EU may plunge further into recession and expose the weakness of the eurozone monetary system as it did in 2012.
Despite concerns from investors and analysts about growing demand, the companies remained firm in their assumption; That the current global macroeconomic uncertainty has not crushed the demand for IT services. According to Nomura, there is no sign of a slowdown in demand yet; Consequently, it is still premature to detect various global macroeconomic indicators of a slowdown in numbers. Similarly, the bites came from Tata Consultancy Services, Infosys and other major IT service providers in India.
Conclusion
U.S. stock futures fell, indicating prolonged sales; This could bring the S&P 500 Index back into the bear market; After stronger-than-expected data in the U.S. on Friday raised expectations; the Federal Reserve will raise rates even more aggressively. Contracts on the S&P 500 fell 1.7%. Nasdaq 100 futures by 2.2%. Shares fell sharply on Friday after CPI data left the S&P 500 up nearly 19% from its January high, Which approached the 20% level that marks the bear market.
Because the Fed is already widely expected to raise interest rates by another half a percentage point when meeting this week, With the latest reading of the CPI, traders are looking further afield. Consumer prices rose to a 40-year high of 8.6% in May, boosting bets over the previous year that the central bank will continue to raise rates by half a point in July and September.
Strategists estimate that the 50 bps rate hike estimated for the Fed this week could be an insufficient response to inflationary pressures. However, with this comes growth concerns, Which means that the scope of the policy error by the Fed is increasing. Negative sentiment escalated in Asia, with the MSCI Asia Pacific Index falling to 2.6% on Monday. China is beginning to re-impose Covid-19 restrictions as infections increase.
Asian stocks have had a better impact recently than American stocks, which have the worst rates in the world this year, as investors position for a tighter monetary policy. The Fed now sees the prospect of an economy in recession to regain control over prices. It is expected that high inflation will continue in the Fed’s mode. Therefore, the “soft” assumption is not excluded. Stocks and investment-level credit are already “on the road” to rising recession risk conditions.
