European Stocks Decline; Powell's Testimony, PMI Data Weigh
Investing.com - Due to growing concerns of a worldwide recession following the Federal Reserve's aggressive interest rate hikes, risk sentiment was shaky Thursday, which contributed to a decline in European stock markets.
The CAC 40 in France plummeted 1.5 percent, the FTSE 100 in the UK declined 0.9 percent, and the DAX in Germany traded 1.6 percent lower by 03:55 AM ET (0755 GMT).
The two largest economies in the Eurozone, France and Germany, had a steep decline in business activity at the end of the second quarter, according to data released on Thursday, fueling worries about a regional economic downturn.
The flash purchasing manager index for France's major services sector dropped to a five-month low in June from 58.3 points in May while the manufacturing sector's flash PMI index fell to 51.0 points, the lowest level in 19 months.
In Germany, the flash PMI for services declined from 55.0 in May to 52.4 in June, and the manufacturing index fell from 54.8 in May to 52.0 in June.
After U.S. Federal Reserve chair Jerome Powell said on the first day of his two-day testimony to Congress that the central bank was "firm committed" to driving down inflation and adding that a recession is "definitely a possibility," European equities indices had already received a bad handover.
"The storyline in the financial markets appears to be rather clear. "Central banks will need to take the steam out of demand by tightening monetary policy to manage inflation because supply-side variables aren't showing any signs of relaxing," wrote analysts at ING in a note. "It remains to be seen whether that slowdown develops into a gentle landing or a recession."
The ongoing conflict in Ukraine, the sanctions imposed on Russian oil as a result, and a rise in gas prices as a result of Moscow cutting back on production all add to the worries in Europe.
German newswire dpa reports that Germany, the biggest economy in Europe, will start the second phase of a three-part plan to ensure supply security later on Thursday. Germany is moving closer to restricting natural gas supplies because it fears a complete cutoff of supplies from Russia.
Due to worries that the Federal Reserve's recent monetary tightening to combat high inflation could cause a significant slowdown in the U.S. economy, which is the world's largest consumer of crude oil, oil prices declined on Thursday.
In order to combat record petrol prices, President Joe Biden also urged Congress to approve a three-month suspension of the federal gasoline tax.
The American Petroleum Institute reported an increase of 5.6 million barrels in its U.S. oil supply for the week that ended June 17 on Wednesday.
Due to technological problems, the U.S. Energy Information Administration will not provide its weekly oil data until at least the next week.
U.S. oil futures were trading 1.8 percent lower at $104.31 a barrel by 03:55 AM ET, while the Brent price was down 1.4 percent at $110.13. In the previous session, both benchmarks dropped by about 3%, reaching their lowest points since mid-May.
Also, gold futures increased by 0.1 percent to $1,839.60/oz, while the EUR/USD declined by 0.6 percent to 1.0506.
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