European markets close lower on hawkish ECB comments, recession fears

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."

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 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

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

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. 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

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 are expected to open in negative territory Tuesday.

The U.K.'s FTSE 100 index is expected to open 17 points lower at 8,393, Germany's DAX down 18 points at 18,718, France's CAC 5 points lower at 8,199 and Italy's FTSE MIB down 31 points at 34,451, according to data from IG.

Earnings are due from Euronext, Eutelsat, Hannover Re, Bayer, Porsche and Vodafone.

— Holly Ellyatt