European Stock Futures Weaken; Recessionary Fears Grow

By Peter Nurse 

Investing.com - European stock markets are expected to open lower Friday, following Wall Street south on renewed fears that aggressive monetary tightening will result in a global recession.

At 02:00 ET (06:00 GMT), the DAX futures contract in Germany traded 0.9% lower, CAC 40 futures in France dropped 0.6% and the FTSE 100 futures contract in the U.K. fell 0.4%.

European stocks have received a negative handover from Wall Street, with the main U.S. indices closing sharply lower. The tech-heavy Nasdaq Composite led the way, dropping 1.4%, the broad-based S&P 500 fell 1.1%, while the blue chip Dow Jones Industrial Average fell 0.6%, to its lowest close in two months.

Investors are bracing for another substantial interest rate hike by the Federal Reserve next week, in the wake of this week’s hot inflation report, which is likely to further depress economic activity in the world’s largest economy and main growth driver.

Attention in Europe will turn to the release of Eurozone CPI data for August, at 05:00 ET (09:00 GMT), which is expected to climb 0.5% on the month, up 9.1% on the year.

The European Central Bank hiked its key interest rates by a historic 75 basis points last week, and signaled more hikes ahead as the policymakers attempted to get on top of these soaring prices.   

Both the World Bank and the International Monetary Fund warned Thursday of an impending global economic slowdown, with Indermit Gill, the World Bank's chief economist, saying he was concerned about "generalized stagflation," a period of low growth and high inflation.

These concerns have overshadowed the release earlier Friday of better than expected Chinese industrial production and retail sales in August. 

By contrast, U.K. retail sales fell 1.6% on the month in August, down 5.4% on the year, according to data released Friday, as consumers reined in discretionary spending with energy and food prices soaring.

In corporate news, the energy sector is likely to be in the spotlight, with Germany placing the German subsidiary of Russian oil giant Rosneft under trusteeship on Friday, handing control of the PCK refinery in Schwedt to the federal regulator.

Germany is also close to taking a controlling stake in the struggling gas importer Uniper (ETR:UN01), potentially paving the way for a full nationalization of the firm.

Oil prices edged higher Friday, rebounding after the previous session’s hefty losses, but were headed for a third straight week of losses on fears that aggressive monetary tightening will hit global growth and thus fuel demand. 

The crude market has also been hit by a strong U.S. dollar in the wake of the hot U.S. inflation data, which makes oil more expensive for buyers using other currencies. 

By 02:00 ET (06:00 GMT), U.S. crude futures traded 0.2% higher at $85.30 a barrel, while the Brent contract rose 0.3% to $91.07. Both contracts tumbled around 4% on Thursday, and were set to lose nearly 2% for the week.

Additionally, gold futures fell 0.4% to $1,670.55/oz, while EUR/USD traded 0.2% lower at 0.9979.