A brief rally in global stocks ended in failure on Wednesday as investors awaited a congressional appearance by Federal Reserve Chairman Jay Powell and business data that could signal a slowdown in the global economy.
The Stoxx Europe 600 gained 1.3% in the previous two sessions and was down 1.5% in early London trade. Indicators for the region are still down more than 17% this year.
The FTSE index for Asia-Pacific outside Japan also rose on Tuesday, down 2.1%, giving up most of its gains. Tokyo’s Topix fell 0.2%.
Futures trading pointed to a 1.7% drop on Wall Street’s S&P 500 after the U.S. benchmark stock index rose 2.5% on Tuesday, taking dips after sharp losses last week.
The FTSE developed and emerging market stock index fell in 10 of the past 11 weeks as central banks around the world followed the Fed to tighten monetary policy to curb blistering global inflation.
Investors worried about the impact of higher prices and debt costs on consumer spending and corporate profits, while business activity surveys showed a decline in manufacturing due to high commodity prices and China’s coronavirus-related lockdown measures.
The S&P 500 is more than a fifth below its all-time high in January, despite some rallies driven by low buying or the unwinding of short positions by hedge funds.
Tuesday was the sixth day since early April that Wall Street’s benchmark index rose more than 2 percent, according to data from JPMorgan.
“The previous five times we’ve seen the index drop an average of 2.5 percent the next day,” said Andrew Taylor, head of U.S. market intelligence at the bank.
“Client activity is quiet due to the general bearishness and sell-off mentality of everyone on all rallies.”
Powell began his two-day testimony to Congress later on Wednesday and could provide clues on whether the Fed plans to raise rates by a similar magnitude in July after a super-major 0.75 percentage point rate hike this month. .
Global manufacturing output contracted in May for the first time since 2020, according to S&P Global’s survey of purchasing managers, which investors see as a real-time indicator of the state of the economy.
The next set of PMI surveys is due on Thursday, with government bond prices firming ahead of the data as economic uncertainty creates demand for low-risk assets.
The yield on the 10-year U.S. Treasury note, which moves inversely to prices and underpins global debt pricing, fell 0.07 percentage point to 3.23 percent on Wednesday, but remained near its highest level since 2011. The German equivalent German Bund yield was trading 0.07 percentage points below 1.7%.
Brent crude, which has been backed by sanctions this year over Russia’s invasion of Ukraine, fell 5 percent to $108.87 a barrel on Wednesday after reports that Washington was Preparing tax measures to reduce fuel costs.
The U.S. dollar index, which measures the safe-haven currency against six other currencies, rose 0.4% and remained near a 20-year high.
Sterling fell 0.9% to just under $1.21 after data showed UK inflation rose to 9.1% last month, adding to fears of a recession that could hamper the Bank of England’s ability to keep raising interest rates.
At the same time, the yen fell to a 24-year low The yen was at 136.71 yen to the dollar, with traders betting the Bank of Japan would defy global trends to keep borrowing costs ultra-low.