US Stock Market Falls on Recession Concerns in Europe and Rising Interest Rates: Weekly Update

US Stocks Slide on Specter of Recession in Europe: Markets Wrap

The US stock market experienced its biggest weekly drop since March on the 23rd, as concerns grew over central banks around the world being forced to raise interest rates further to curb inflation. The government bond market, on the other hand, saw a rise as investors speculated that excessive tightening would lead to a sharp downturn in the economy.

The European economic data also weighed on the market, with the Eurozone economic activity mostly stalling in June, falling below forecast. This added to the growing concerns of a potential recession in Europe.

Tech stocks took profits this year, leading to a 1.4% weekly drop in the S&P 500 index. The Nasdaq 100 Index also lost 1.3% for the week. Semiconductor makers Marvel Technology and GlobalFoundries experienced a sell-off, while Microsoft and Nvidia pushed down the overall index.

The strong demand for artificial intelligence (AI)-related stocks, which were expected to grow, drove the second-quarter stock gains. However, the momentum is fading amid speculation of further rate hikes and concerns about the full economic impact of the aggressive tightening so far.

Federal Reserve Chairman Jerome Powell’s testimony to Congress this week, stating that one or two more interest rate hikes could be needed this year, further cooled the mood in stock markets.

The US Manufacturing Purchasing Managers’ Index (PMI) for June fell to 46.3, the lowest since December last year, indicating a worsening manufacturing sector. This data, along with the disappointing PMIs in Germany and France, added to recession fears in Europe.

The US Treasury market rose along with the global rise in bond prices, as PMIs in Germany and France fueled recession fears in Europe. The inverted yields on 2-year bonds and 10-year bonds temporarily expanded to more than 100 basis points, signaling a potential recession.

In the foreign exchange market, the yen fell against the dollar for the sixth time in seven business days. Foreign exchange traders are closely watching officials’ remarks as the Japanese government and the Bank of Japan intervened in the foreign exchange market last year to buy the yen and sell the dollar.

New York crude oil futures continued to fall due to hints of further interest rate hikes by US Fed officials and disappointing European indicators of an economic slowdown. Rising interest rates are expected to increase all related costs, from storing oil to transporting it.

The New York gold market rebounded as weaker economic activity in Europe heightened fears of a recession due to interest rate hikes. The price of gold rose as flight purchases into the safe-haven asset increased following the PMI data.

Overall, the US stock market experienced a significant drop, driven by concerns over potential recession in Europe and the possibility of further interest rate hikes. Investors are closely monitoring economic data and central bank actions for further market developments.

Sources:
– Bloomberg: US Stocks Slide on Specter of Recession in Europe: Markets Wrap
– Bloomberg: Treasury Rally Fades After Early Bid in a Choppy Session
– Bloomberg: Euro Drops With Commodity FX Amid Recession Worries: Inside G-10
– Bloomberg: Oil Posts Biggest Weekly Decline Since May Amid Recession Fears
– Bloomberg: Gold Rebounds as Weaker European Data Boosts Recession FearsUS Stocks Slide on Specter of Recession in Europe: Markets Wrap

The US stock market experienced its biggest weekly drop since March on the 23rd, as concerns over a potential recession in Europe weighed heavily on investor sentiment. There is growing worry that central banks around the world will be forced to raise interest rates further in order to curb inflation, which has caused unease among investors. On the other hand, the government bond market saw a rise as investors sought safe-haven assets amid fears of an economic downturn.

The S&P 500 index fell 1.4% on a weekly basis, with tech stocks taking profits this year. The Nasdaq 100 Index also lost 1.3% for the week. Semiconductor makers Marvel Technology and GlobalFoundries experienced sell-offs, while Microsoft and Nvidia contributed to the overall decline in the index.

The recent stock gains in the second quarter were driven by strong demand for artificial intelligence (AI)-related stocks, which are expected to grow. However, the momentum is fading due to speculation of further rate hikes and concerns that the full economic impact of the aggressive tightening measures has yet to be seen.

Federal Reserve Chairman Jerome Powell’s testimony to Congress this week, in which he mentioned the possibility of one or two more interest rate hikes this year, further cooled the mood in stock markets.

Economic data released in Europe also added to the market’s concerns. The Eurozone economic activity mostly stalled in June, with the headline Purchasing Managers’ Index (PMI) falling below forecast. This fueled fears of a recession in the eurozone and prompted an early flight into bonds as investors sought safety.

In the foreign exchange market, the yen fell against the dollar for the sixth time in seven business days. Foreign exchange traders are closely monitoring officials’ remarks, as the Japanese government and the Bank of Japan intervened in the foreign exchange market last year to buy the yen and sell the dollar.

Crude oil futures continued to fall, driven by hints of further interest rate hikes by US Fed officials and disappointing European indicators of an economic slowdown. Rising interest rates are expected to increase costs across the oil industry, from storage to transportation.

Gold prices rebounded in the New York market, as weaker economic activity in Europe heightened fears of a recession due to interest rate hikes. The price of gold had previously fallen about 6% from its peak in late May, but the easing of concerns over the US regional bank crisis made it less appealing as a safe haven asset. However, flight purchases into gold resumed following the release of the PMI data.

Overall, the US stock market’s decline reflects growing concerns over a potential recession in Europe and the possibility of further interest rate hikes. Investors are closely monitoring economic data and central bank actions for any signs of a downturn in the global economy.

What potential economic impacts could be anticipated from the aggressive tightening measures implemented so far?

Economic impact of the aggressive tightening measures implemented so far is yet to be fully understood.

The European economic data also played a role in the market decline, with the Eurozone economic activity mostly stalling in June and falling below expectations. This added to concerns of a potential recession in Europe, further weighing on investor sentiment.

Federal Reserve Chairman Jerome Powell’s testimony to Congress, in which he stated that more interest rate hikes may be needed this year, further dampened the mood in the stock markets.

Additionally, the US Manufacturing Purchasing Managers’ Index (PMI) for June fell to its lowest level since December, indicating a worsening manufacturing sector. This data, coupled with disappointing PMIs in Germany and France, increased concerns of a recession in Europe.

The US Treasury market saw a rise in bond prices, fueled by the global increase in bond prices. The inverted yields on 2-year and 10-year bonds also expanded temporarily, signaling a potential recession.

In the foreign exchange market, the yen fell against the dollar as the Japanese government and the Bank of Japan closely monitored officials’ remarks. Last year, they intervened in the foreign exchange market to buy the yen and sell the dollar.

Crude oil futures in New York continued to decline due to hints of further interest rate hikes by US Federal Reserve officials and disappointing economic indicators in Europe. Rising interest rates are expected to increase costs related to storing and transporting oil.

Gold prices rebounded in the New York market as weaker economic activity in Europe increased fears of a recession caused by interest rate hikes. The price of gold rose as investors purchased the safe-haven asset following the PMI data.

Overall, the US stock market experienced a significant drop due to concerns of a potential recession in Europe and the possibility of further interest rate hikes. Investors will continue to closely monitor economic data and central bank actions for further market developments.