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Stocks are set to fall for a fourth straight session after hawkish comments from Federal Reserve Chair Jerome Powell before Congress yesterday and as major central banks in Europe keep hiking interest rates. Higher interest rates raise concerns of slower growth or recession. Fed Chair Powell will testify again today.

US futures

Dow futures -0.23% at 33863

S&P futures -0.28% at 4353

Nasdaq futures -0.35% at 14814

In Europe

FTSE -0.85% at 7534

Dax -0.54% at 15943

• Hawkish Powell testifies for a second day
• Global central banks keep hiking rates
• GBPUSD falls despite surprise 50bps hike
• Oil falls on global slowdown fears
   

Hawkish Powell testifies for a second day

US stocks are set to start the session lower, extending losses into a fourth straight session as policy tightening fears hurt market sentiment.

Stocks sold off on Wall Street play off the hawkish warnings by Federal Reserve chair Jerome Powell in his testimony before Congress. Powell clearly stated that interest rates need to rise further to tame inflation, with around another two hikes expected.

In the European session, the BoE and Norges bank hiked by 50 basis points, ahead of forecasts, while the SNB raised rates by a further 5 basis points.

Central banks are clearly not finished with hiking rates, and higher rates for longer inevitably raise the risk of a recession.

After the recent rally in equities taking the S&P500 to a 14-month high last week, the markets are reassessing whether further risk is justifiable.

In the US, recession fears are brewing amid the prospect of tighter monetary policy, pushing the treasury yield inversion to 1% for the first time since March.

Looking ahead, Federal Reserve Chair Jerome Powell will testify again before Congress. His comments will be watched closely for further cues on monetary policy.
 

Corporate news

Amazon is in focus after the FTC accused the only giant of enrolling millions of customers into its Amazon Prime paid subscription service without consent.

Tesla is falling over 3% premarket after Morgan Stanley, one of the EV manufacturer's most vocal supporters, downgraded its stance to an equal rate after its recent rally sent valuations too high.

Darden Restaurants fell 3.9% after quarterly earnings beat forecasts, but former CEO Gene Lee plans to step down as chair of the board.
 

S&P500 outlook – technical analysis

The S&P 500 ran into resistance at 4448 and is extending declines for a fourth day. The price has broken below the 3-week rising trendline, which, combined with the bearish crossover on the MACD, keeps sellers hopeful of further losses. Immediate support can be seen at 4325, the August high, with a break below here exposing the 20 sma at 4304 and 4257, the June 8 low. A break below here negates the near-term uptrend. On the upside, buyers will look for a rise above 4415 riding trendline resistance to bring 4448 back into play.

(Click on image to enlarge)

FX markets – USD steady, GBP falls despite a jump hike

The USD is holding steady after booking small losses yesterday. The US index appears unimpressed by Fed Chair Powell’s hawkish stance.

GBPUSD briefly rose to 1.28 before paring gains after the Bank of England voted 7-2 to hike interest rates by 50 basis points to 5%. This was the first jumbo rate hike from the central bank since February and came despite the market only pricing in a 40% probability of such a large move.

After yesterday’s inflation shock, with core inflation showing that it still hasn’t peaked, the central bank felt it needed to act aggressively to show that it is serious about fighting inflation. I think there was a fear among policymakers that if they didn’t go big, the price/wage spiral could strengthen.

After taking interest rates to 5% and signaling that there could be more hikes to come, the UK economy is more likely to fall into a recession – perhaps what the BoE is after to ensure that inflation expectations don’t become embedded.

GBP/USD -0.04% at 1.2720
 

Oil falls as interest rates keep rising

Oil prices are falling on fears that central banks hiking interest rates higher and for longer will slow global growth, hurting the oil demand outlook.

Yesterday, Federal Reserve Chair Jerome Powell struck a hawkish tone saying that interest rates still have further to go. Today the BoE hiked by a surprise 50 basis points as it struggles to tame inflation.

Looking ahead, EIA data is due to be released and comes after API data showed a 1.2-million-barrel draw, defying forecasts of a 300k barrel build.

WTI crude trades -1.99% at $71.15

Brent trades at -1.8% at $75.74
 

Looking ahead

15:00 Fed Chair Powell’s testimony

15:30 EIA crude oil stockpiles

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