Expectations are for a sharp decline in European stock markets when they open on Friday, following the weakness on Wall Street.
Investors are awaiting the release of the U.S. jobs report, which could influence the Federal Reserve’s monetary policy.
At 02:00 ET (07:00 GMT), DAX futures in Germany were down 1.4%, CAC 40 futures in France had dropped 0.5%, while FTSE 100 futures in the U.K. were down 1.5%. This week, Jerome Powell’s semi-annual testimony to Congress caused negative sentiment among investors, with the chairman of the U.S. Federal Reserve warning that the central bank was prepared to speed up rate hikes to address persistent inflation.
Investors are bracing for a possible half-percentage point rate hike from the Federal Reserve in March, which is a more accelerated increase from the 25 basis point hike in early February.
This comes as the Dow Jones Industrial Average fell by 1.7%, or over 500 points, on Thursday due to investor caution ahead of the latest U.S. payrolls report.
Federal Reserve Chairman Jerome Powell mentioned the report as one of the key indicators framing the Fed’s thinking. Analysts predict a slowdown in nonfarm payrolls, with an expected increase of 205,000 jobs last month, down from the 517,000 added in January. However, the market remains nervous due to last month’s unexpected surprise.
In Europe, there are concerns about inflation as German consumer prices rose 0.8% in February, leading to an annual rise of 8.7%. This indicates that the European Central Bank may face challenges in controlling inflation in the Eurozone.
Meanwhile, the UK’s economy showed a slight improvement with a 0.3% rise in gross domestic product in January, following a 0.5% drop in December. However, the country’s industrial production fell 0.3% in the same month, highlighting the ongoing economic struggles.
Investors will also be closely monitoring the European banking sector after US banking stocks experienced significant losses, with the S&P 500 bank index recording its largest single-day decline in nearly three years.
On Friday, concerns over steep interest rate hikes in the US and disappointing economic data out of China weighed heavily on the oil market, causing prices to fall. US crude futures traded 1.1% lower at $74.91 a barrel, while Brent contract dropped 0.8% to $80.95, making both benchmarks set to lose about 5% for the week, marking their worst weekly loss in five weeks. The worry is that the interest rate hikes could hinder economic activity and lead to lower crude demand from the largest consumer in the world.
Meanwhile, gold futures rose 0.1% to $1,835.85/oz, and EUR/USD traded 0.1% higher at 1.0591. On the other hand, the European banking sector is also likely to be in focus on Friday, following a sharp drop in US banking stocks, with the S&P 500 bank index suffering its biggest one-day decline in nearly three years. This came after SVB Financial announced a $2.25 billion equity raise due to a net loss of $1.8B, and crypto bank Silvergate’s decision to wind down operations.
In Europe, German inflation remained highly elevated, with consumer prices rising 0.8% in February, and an annual increase of 8.7%. This suggests the European Central Bank will need to continue working hard to curb inflation in the Eurozone. Meanwhile, the UK’s gross domestic product rose 0.3% in January, an improvement from the 0.5% drop in December. However, industrial production fell 0.3% in the same month, indicating the economic challenges currently facing the country.