European Stock Futures Edge Higher; Overall Sentiment Remains Weak

By Peter Nurse

Investing.com - European stock markets are expected to open higher Tuesday, attempting to rebound after a hesitant start to the week as investors fretted about rising interest rates and a deteriorating economic outlook.

At 02:00 ET (06:00 GMT), the DAX futures contract in Germany traded 1% higher, CAC 40 futures in France climbed 0.5%, and the FTSE 100 futures contract in the U.K. rose 0.4%.

European equities closed largely lower Monday as the new week continued September’s negative note, with investors concerned that aggressive monetary tightening to combat soaring inflation will push not only Europe, but much of the world, into recession.

Although stocks are seen opening higher, for the first time in four sessions, any gains are likely to be limited as any form of growth is likely to be hard to find for much of the rest of this year.

The European Central Bank is expected to raise interest rates further over its "next several meetings", ECB president Christine Lagarde said on Monday at a hearing of the European Parliament's Committee on Economic and Monetary Affairs, with these hikes designed to dampen demand.

Goldman Sachs downgraded equities to underweight in its global allocation over the next three months, saying rising real yields and the prospect of a recession suggest the rout has further to run.

“Current levels of equity valuations may not fully reflect related risks and might have to decline further to reach a market trough,” analysts at the influential U.S. investment bank said, in a note.

Investors will also be keeping an eye on developments in Italy after Giorgia Meloni’s right-wing coalition won Sunday’s election. The country’s first female leader faces a darkening economic outlook, high debt levels with rising bond yields, and energy price hikes in the wake of Russia’s invasion of Ukraine.

Additionally, the Bank of England will be in focus after the pound’s sharp selloff in the wake of new U.K. finance minister Kwasi Kwarteng announcing Britain’s biggest package of tax cuts in 50 years, which is likely to be funded by increased borrowing.

On Monday, BoE Governor Andrew Bailey attempted to soothe markets by stating that the bank will raise rates as much as necessary at its next meeting, but sterling’s rebound has been limited with the next get-together over a month away.

Oil prices edged higher Tuesday, rebounding from the lowest levels since January as markets weighed the potential for a reduction in supply even as recessionary concerns, tighter monetary policy, and a rally in the dollar dimmed the outlook for demand.

Major crude producers BP and Chevron said that they had cut production at some offshore oil platforms in the Gulf of Mexico in anticipation of Hurricane Ian.

Additionally, Iraq Oil Minister Ihsan Abdul Jabbar said on Monday the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, were monitoring the oil price situation, raising the possibility of the group cutting output at next week’s meeting.

By 02:00 ET, U.S. crude futures traded 1.2% higher at $77.65 a barrel, while the Brent contract rose 1.2% to $83.88. Both contracts sank by about $2 a barrel on Monday, adding on to Friday’s 5% slump.

Additionally, gold futures rose 0.6% to $1,642.30/oz, while EUR/USD traded 0.5% higher at 0.9650.

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