European Shares May Weaken Further On Hawkish Fed Commentary

European stocks may see further selling pressure on Friday as investors weigh the risks of a simultaneous and rapid global tightening.

Asian markets fell again amid increased anxiety over a possible global recession, while oil steadied on the prospects of OPEC+ output cut.

The United States imposed new sanctions Thursday against several companies that facilitate trade in Iranian oil and petrochemical products.

A pullback in the U.S. dollar supported gold prices, though the precious metal remained on course for its biggest quarterly fall since early 2021 on worries about aggressive monetary tightening by global central banks.

“I’m quite comfortable” with raising interest rates to 4-4.5 percent this year and 4.5-5 percent next year, San Francisco Fed President Mary Daly told reporters after a speech at Boise State University on Thursday, adding she expects that rates will need to stay at that level for all of 2023.

Cleveland Fed President Loretta Mester echoed the hawkish rhetoric, saying the U.S. central bank will need to go even further than it signaled last week.

St. Louis Federal Reserve Bank President James Bullard noted that the weekly Jobless Claims reported on Thursday was a “super low number,” and it was important to avoid a 1970s inflation scenario.

Flash inflation and unemployment data from the euro area are due later in the session, headlining a hectic day for the European economic news.

Across the Atlantic, a report on personal income and spending is likely to be in focus. The report includes a reading on inflation said to be preferred by the Federal Reserve.

Government data showed earlier today that Chinese manufacturing sector unexpectedly returned to growth in September, breaking two straight months of declines. However, the Caixin manufacturing PMI marked a second straight month of contraction.

U.S. stocks suffered heavy losses overnight, as bond yields resumed their upward climb and better-than-expected jobless claims, 2Q core PCE, a measure of inflation, and personal consumption numbers paved way for more aggressive tightening from the Federal Reserve.

The Dow lost 1.5 percent and the S&P 500 tumbled 2.1 percent to close at its lowest level since late 2020, while the tech-heavy Nasdaq Composite plummeted 2.8 percent.

European stocks tumbled on Thursday as the impact of the Bank of England’s bond market intervention faded, and German inflation posted the highest reading since December 1951.

The pan European Stoxx 600 declined 1.7 percent. The German DAX lost 1.7 percent, France’s CAC 40 index fell 1.5 percent and the U.K.’s FTSE 100 dropped 1.8 percent.

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