European markets close lower on hawkish ECB comments, recession fears
European markets closed lower Tuesday after giving up earlier gains following hawkish comments from an ECB official.
The pan-European Stoxx 600 closed down by 0.7% provisionally, having initially climbed about 0.8% in early trade Basic resources stocks slumped 3% to lead the losses with most sectors and major bourses dipping into negative territory.
It comes after European Central Bank policymaker Madis Muller said the central bank should consider a 75-basis-point rate hike in September to tackle sky-high inflation, adding to a chorus of hawkish commentary from central bankers in recent days.
At a top central bankers' conference last week, Federal Reserve Chair Jerome Powell signaled higher interest rates would likely persist in a bid to tame soaring inflation.
In his much-anticipated annual policy speech at Jackson Hole, Wyoming, Powell said that the Fed will "use our tools forcefully" to control inflation, which is still running near its highest level in more than 40 years. He acknowledged that rising interest rates will cause "some pain" to households and businesses.
Powell's comments were echoed by European Central Bank board member Isabel Schnabel over the weekend. Schnabel reaffirmed the view that central banks must act aggressively to tackle rising inflation, even if that means dragging their economies into a recession.
U.S. stocks drop for third day
U.S. equities sank on Tuesday as market action got underway, setting up Wall Street for a third consecutive day of losses.
The Dow Jones Industrial Average sank more than 200 points, or 0.8%, while the tech-heavy Nasdaq Composite fell 1.2% and the S&P 500 was down 1%.
Stocks have given back some of their summer gains following recent comments by Federal Reserve officials making clear that the central bank aims to continue its aggressive interest rate hiking campaign.
Last week, Fed Chair Jerome Powell said it would need to maintain a tighter policy stance "for some time."
ECB policymaker suggests 75-basis-point hike
A European Central Bank official said the institution should consider hiking interest rates by 75 basis points at its next meeting to combat soaring inflation in the euro zone.
In comments made to Reuters Tuesday, Madis Muller, governor of the Estonian central bank and a member of the ECB's Governing Council, said a 75-basis-point hike "should be among the options for September given that the inflation outlook has not improved."
The ECB hiked rates by 50 basis points at its last monetary policy meeting in July, and is expected to take similar action at its subsequent gathering in September. It comes as sky-high inflation and signs of slowing economic growth have fueled fears the euro zone may be on the precipice of a grim downturn.
Goldman Sachs predicts UK inflation could hit 22%
Goldman Sachs warned that U.K. inflation could soar above 22% next year if energy prices continue their upward spiral.
The U.S. investment bank said in a research note that headline inflation could peak at 22.4% and gross domestic product could drop by 3.4% if energy costs keep rising at their current pace.
It comes after British households were hit with a projected 80% increase in their energy bills in the coming months, taking the average annual household bill to £3,549 ($4,197) from £1,971 and exacerbating the country's existing cost-of-living crisis.
— Karen Gilchrist
Stoxx 600 makes gains in early trade
The pan-European Stoxx 600 rose 0.8% in early trade, with banks adding 1.7% to lead gains as all sectors advanced except basic resources, which fell 0.6%.
The best performer on the index was Danish healthcare company Ambu, up around 7.3%, while the worst performer was the investment group Storskogen, down 5.6%..
— Holly Ellyatt
CNBC Pro: Strategist reveals why this FAANG stock is a safe bet heading into September
A "seasonally weak" period for equities is just around the corner, and that could mean more volatility for stock markets.
But King Lip, chief strategist at BakerAvenue Wealth Management, believes one FAANG stock could be a safe bet.
Pro subscribers can read the story here.
— Zavier Ong
The U.S. needs a 'miracle' if it is to avoid a recession: Stephen Roach
The U.S. will be going into a recession unless a "miracle" happens, said Stephen Roach, who was formerly chair of Morgan Stanley Asia.
"We'll definitely have a recession as the lagged impacts of this major monetary tightening start to kick in," he told CNBC's "Fast Money" on Monday. "They haven't kicked in at all right now."
"The unemployment rate has got to go probably above 5%, hopefully not a whole lot higher than that. But it could go to 6%," Roach added.
— Jihye Lee, Stephanie Landsman
CNBC Pro: Analyst names the stocks 'at risk of going to $0' and 3 top picks, giving one over 80% upside
Stocks burning through cash are about to get hit, says David Trainer, CEO of investment research firm New Constructs.
That's because interest rates are going to get even higher, which means liquidity will start to dry up, he explained
He tells investors to avoid "zombie" stocks and identifies stronger bets.
CNBC Pro subscribers can read more here.
— Weizhen Tan
European markets: Here are the opening calls
European markets are heading for a higher open Thursday as concerns over the banking sector ease.
The U.K.'s FTSE 100 index is expected to open 8 points higher at 7,558, Germany's DAX 30 points higher at 15,341, France's CAC up 12 points at 7,194 and Italy's FTSE MIB 49 points higher at 26,301, according to data from IG.
Data releases include preliminary German inflation data for March and Italian producer prices for February.
— Holly Ellyatt