As a result of the Federal Reserve’s aggressive interest rate hikes, fears of a global recession grew on Thursday, which made investors less willing to take risks.
By 3:55 a.m. ET (07:55 GMT), the DAX in Germany was down 1.6%, the CAC 40 in France was down 1.5%, and the FTSE 100 in the UK was down 0.9%.
According to data released on Thursday, business activity in Germany and France, the two largest economies in the Eurozone, slowed down sharply at the end of the second quarter. This has raised concerns about an economic slowdown in the region.
The flash purchasing manager index for France’s key services sector fell to 54.4 points in June, down from 58.3 points in May. The flash PMI index for France’s manufacturing sector also fell to 51.0 points, the lowest level in 19 months.
In Germany, the flash PMI for services dropped to 52.4 in June from 55.0 in May, and the index for manufacturing dropped from 54.8 to 52.0.
European stock market indices were already weak when U.S. Federal Reserve chair Jerome Powell told Congress on the first day of his two-day testimony that the central bank is “strongly committed” to bringing down inflation and that a recession is “certainly a possibility.”
“The story seems pretty clear on the financial markets. Inflation needs to be dealt with, and since supply-side factors don’t seem to be getting better, central banks will have to tighten monetary policy to slow down demand, analysts at ING said in a note. “It’s still too early to tell if this slowdown will lead to a soft landing or a recession.”
The ongoing war in Ukraine, the sanctions that go along with it on Russian crude, and a rise in gas prices because of Moscow’s cutting back on its supply are all things that worry people in Europe.
Germany, which has the largest economy in Europe, will start the second phase of its three-phase plan to ensure supply security later on Thursday, according to the German news agency dpa. This will bring Germany one step closer to rationing natural gas supplies because it fears that Russia will cut off all supplies.
Oil prices fell again on Thursday, continuing a recent trend. This is because people are worried that the Federal Reserve’s plan to tighten money in order to stop inflation will cause a sharp slowdown in the U.S. economy, which is the biggest consumer of crude in the world.
Also, President Joe Biden asked Congress to pass a bill that would suspend the federal gasoline tax for three months. This would help fight the high prices at the pump.
The American Petroleum Institute reported on Wednesday that there were 5.6 million more barrels of crude oil in the United States for the week ending June 17.
Due to problems with its systems, the U.S. Energy Information Administration won’t be able to release its weekly oil data until at least next week.
By 3:55 a.m. ET, U.S. crude futures were down 1.8% to $104.31 per barrel, while the Brent contract was down 1.4% to $110.13 per barrel. Both benchmarks fell about 3% in the last session, reaching their lowest levels since the middle of May.
Also, gold futures went up 0.1% to $1,839.60/oz, but EUR/USD went down 0.6% to 1.0506.