Wall Street expected to rebound but recession risk keeps investors cautious

LONDON, June 21 (Reuters) – Wall Street was expected to open higher on Tuesday and European stocks were set for a second day of gains, recovering slightly from last week’s 17-month lows, but plans to hike rates from major central banks and the global recession risks have prompted investors to be cautious.

Global equities have risen slightly so far this week, recovering from last week’s strong sell-off that saw global equities tumble to their lowest level since November 2020, as expectations of a tightening central bank policy to fight high inflation prompted investors to abandon risky assets.

As of 11:10 GMT on Monday, the MSCI World Stock Index, which tracks stocks in 50 countries, was up 0.4% on the day (.MIWD00000PUS).

The European STOXX 600 rose 0.8% (.STOXX) and London’s FTSE 100 rose 0.7% (.FTSE).

U.S. markets, which were closed Monday for a holiday, were expected to open higher as S&P 500 e-minis and Nasdaq futures both rose 1.7%, .

Still, analysts expect the rebound to be short-lived. Timothy Graf, head of macro strategy for EMEA at State Street Global Markets, said the rise was likely due to oversold markets in recent weeks and relief that event-related risks, such as Bank of Japan and the Swiss National Bank, have passed. .

“I think it’s a pause in what is still a trend where you have this increasing likelihood of slowing growth, high inflation – potentially stagflation – of outcome,” he said.

“I don’t think the stock markets and corporate earnings outlook have really taken that into account.”

Goldman Sachs said it now believes there is a 30% chance the US economy will tip into a recession within the next year, up from its previous forecast of 15%. Read more

German industry association BDI has cut its economic forecast for 2022 and said a halt in Russian gas supplies would make recession in Germany inevitable. Read more

Earlier in the session, Reserve Bank of Australia Governor Philip Lowe signaled further rate hikes and said inflation is expected to reach 7% by year-end. Read more

European bond yields rose, with the benchmark German 10-year yield up 12 basis points on the day to 1.78%.

In the currency markets, the euro rose 0.4% to $1.05515, while the US dollar index fell 0.2% on the day to 104.07.

The US 10-year yield was at 3.2844%, down from last week’s high of 3.495% – its highest since 2011 – which came the same day the Fed raised interest rates by 75 basis points.

The Japanese yen, which has fallen sharply in recent months, fell further to $135.97 – the weakest yen since 1998.

Japanese Prime Minister Fumio Kishida said the central bank should maintain its current ultra-loose monetary policy. This makes it an outlier among other major central banks. Read more

Oil prices rose as investors focused on the limited supply of petroleum products and crudes. Brent crude futures rose 1.1% to $115.38 while US West Texas Intermediate (WTI) crude futures rose 1.4% to $111.13. Read more

Gold was little changed at around $1,832.6 an ounce.

Bitcoin was up around 3% on the day at $21,173, having stabilized slightly since plunging to $17,592.78 over the weekend. Cryptocurrencies have increasingly become a measure of risk appetite, State Street’s Graf said.

Reporting by Elizabeth Howcroft; Editing by Louise Heavens and Chizu Nomiyama

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