European Stock Futures Lower; Rate Hike Expectation, COVID Fears Weigh By


© Reuters.

By Peter Nurse – European stock markets are expected to open sharply lower Monday, continuing the global selloff after red-hot inflation data raised fears of aggressive Federal Reserve monetary tightening while a burst of COVID cases in Beijing quelled hopes of a sharp rebound in demand from the world’s second largest economy.

At 2 AM ET (0600 GMT), the contract in Germany traded 1.5% lower, in France dropped 1.5% and the contract in the U.K. fell 0.8%.

European equities closed sharply lower Friday and are expected to continue heading south at the start of the new week following hefty losses in Asia earlier Monday.

Japan’s , South Korea’s and the in Hong Kong all dropped around 3% Monday, while U.S. equity futures pointed to further losses, as investors digested the largest year-on-year increase in the since December 1981, data showed on Friday.

This hit hopes that U.S. inflation had peaked and raised the chances that the , which meets later in the week, will continue its aggressive monetary tightening past the 50 basis point hikes already largely priced in for June and July.

Adding to the market’s woes was Sunday’s news of a “ferocious” COVID-19 outbreak in Beijing’s most populous district of Chaoyang, prompting three rounds of mass testing and raising concerns of more stringent lockdowns just a few days after coming out of a prolonged period of mobility restrictions which hit economic growth.

This follows the confirming late last week that it intends to hike by 25 basis points in July, with another rate increase also expected in September, weighing on sentiment.

U.K. fell 0.3% in April, according to Monday’s data, much weaker than the 0.1% growth expected, while the U.K. government also risks reopening old Brexit wounds as it is expected to propose a law that would let U.K. ministers override parts of the Brexit deal signed with the European Union.

In corporate news, French drugmaker Sanofi (NASDAQ:) said the COVID-19 vaccine candidate it has developed jointly with GSK (LON:) in two trials showed a potential to protect against the virus’s main variants of concern, when used as a booster jab.

Oil prices slipped Monday as a burst of new COVID-19 cases in Beijing, China’s capital city, thwarted hopes of a rapid increase in demand from the world’s largest crude importer.

Also weighing on the price of crude is the prospect of further U.S. monetary tightening to combat surging inflation, boosting the and potentially causing a sharp economic slowdown.

By 2 AM ET, futures traded 1.8% lower at $118.50 a barrel, while the contract fell 1.8% to $119.84.

Additionally, fell 0.4% to $1,867.80/oz, while traded 0.3% higher at 1.0479.

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