European stock futures fall on energy crisis and recession woes

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(Bloomberg) – European stock futures fell as the region’s energy crisis continued to deepen and investors worried about the impact of hawkish central banks on the economy while monitoring the news regarding the British government’s tax proposal.

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December contracts on the Euro Stoxx 50 index were down 1.2% at 7.38am in London after earlier falling 2.4%. Futures on the FTSE 100 also cut early losses to trade down 1% after Prime Minister Liz Truss scrapped a tax cut plan for top earners just 10 days after announcing it .

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Meanwhile, Russia’s state-controlled Gazprom PJSC suspended natural gas deliveries to Italy, deepening Europe’s energy crisis.

Political unrest in the UK has added to headwinds for European investors already grappling with the fallout from the Russian war in Ukraine as well as global concerns over inflation and rising rates. The pound hit a record low against the dollar last week as European stocks fell and UK bond yields surged. Meanwhile, Citigroup Inc. strategists said they would buy the FTSE 100 decline on cheaper valuations and high international exposure.

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“The bond market turmoil is rocking equity markets as investors struggle to understand the future trajectory of growth and inflation,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “What was once the drive to position for the end of 2023 and beyond in favor of growth stocks has shortened to the next few months and the need for risk management.”

Sanford C. Bernstein strategists Sarah McCarthy and Mark Diver also said the uncertainty surrounding the path of bond yields over the next two years is “one of the biggest risks” to stock valuations.

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Investors are also monitoring developments surrounding Credit Suisse Group AG after its new chief asked investors for less than 100 days to come up with a new turnaround strategy. The cost of insuring corporate bonds against default soared about 15% last week to levels not seen since 2009 as stocks hit a new record high.

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