European Stock Futures Lower; Fed Tightening Prospects Weigh

European Stock Futures

European stock markets are expected to open lower Friday as the sharp rise in U.S. consumer prices raised the prospect of aggressive monetary policy tightening by the Federal Reserve, potentially weighing on global growth.

At 2:05 AM ET (0705 GMT), the DAX futures contract in Germany traded largely flat, while CAC 40 futures in France dropped 0.8% and the FTSE 100 futures contract in the U.K. fell 0.7%.

The weakness in Europe, which follows a sharp selloff on Wall Street and losses in Asia overnight, follows the release of U.S. data on Thursday which showed consumer prices surged 7.5% in January on a year-over-year basis, the biggest annual increase in inflation in 40 years.

The yield on benchmark 10-year U.S. Treasury hit 2% for the first time since August 2019 and was last at 2.0329%.

The market now sees a strong chance of the Federal Reserve starting its monetary policy tightening with a 50 basis point hike in March, especially after St. Louis Fed President James Bullard stated that he has become “dramatically” more hawkish. He added that he now wants a full percentage point of interest rate hikes over the next three U.S. central bank policy meetings.

The U.S. economy is the world’s largest and widely seen as the globe’s major growth driver. Any moves to curtail inflation are likely to have wider implications.

European Central Bank President Christine Lagarde warned on Thursday that tightening monetary policy too quickly could harm the eurozone’s economic recovery, warning that the Eurozone can’t be compared to other major regions.

Also weighing on sentiment is the breakdown of diplomacy surrounding the Ukraine crisis, with the United States urging Americans in Ukraine to leave immediately due to the “increased threats of Russian military action.”

Looking at economic data, the U.K. economy contracted slightly in December, with GDP falling 0.2% on the month as the latest wave of Covid-19 hit the retail and hospitality sectors, in particular.

Oil prices weakened Friday, heading for their first weekly decline since mid-December, as the red-hot U.S inflation release pointed to aggressive interest rate hikes, boosting the dollar.

In addition, the Iranian nuclear talks appear to be progressing, which could result in the return of crude exports to the global market from the Persian Gulf nation.

By 2:15 AM ET, U.S. crude futures traded 0.3% lower at $89.59 a barrel, while the Brent contract fell 0.5% to $90.97. Both contracts had posted new seven-year highs this week, but are still in line for their first weekly decline after seven consecutive weekly gains.  

Additionally, gold futures fell 0.7% to $1,824.00/oz, while EUR/USD traded 0.4% lower at 1.1381.

The FTSE MIB climbed up by 0.23% to 27,190.20. In the cash markets, the DAX  Germany was trading up by 0.05%  to 15,490.65. CAC 40  in France  Fell by 0.41% to 7,101.37 while the FTSE 100  in the U.K. was up by 0.38% to 7,672.35, at the time of writing.

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