Powell in Congress, Recession Fears, API Inventories - What's Moving Markets

© Reuters

By Geoffrey Smith

Investing.com -- The global market rally runs into a familiar pattern of fresh selling on recession fears. Fed Chair Jerome Powell heads to Capitol Hill for two days of testimony. President Joe Biden is expected to call for a suspension of the federal gasoline tax. Further afield, inflation in the U.K. hits a new high and the IEA warns of a total shut-off of Russian gas to Europe. Here's what you need to know in financial markets on Wednesday, June 22.

1. Global market rally fades

The global rally in stock markets quickly ran into a familiar pattern of fresh selling as recession fears once again took the upper hand.

Asian and European equities sank overnight and bonds rallied, with European markets underperforming as the International Energy Agency warned regional leaders to prepare for a total cut-off of Russian gas supplies.

By 06:15 a.m. ET (1015 GMT), the yield on the U.S. 10-Year Treasury was down 8 basis points at 3.22%, while the 2-year note was down 7 basis points at 3.13%.

The fading of risk appetite was also evident in cryptocurrencies, where Bitcoin fell 4.0% to $20,441.

2. Powell in Congress; mortgage data due

Federal Reserve Chair Jerome Powell will begin two days of testimony to Congress on the state of the economy, addressing the Senate Banking Committee from 08:30 a.m. ET onward.

He’s likely to be grilled over the trade-offs between bringing inflation down and the risk of driving the U.S. into a recession (Citigroup analysts raised their estimate of recession risk to 50% on Tuesday).

Powell’s recent meeting with President Joe Biden had appeared to leave him with all the leeway necessary to bring inflation down from its 4-decade high. However, Congressmen and -women facing re-election in five months’ time may be less generous.

Signs of the U.S. economy starting to cool are already multiplying, with existing home sales falling for a fourth straight month in May as rising interest rates hit affordability metrics. MBA data on mortgage applications are due at 07:00 a.m. ET.

3. Stocks set to open lower 

U.S. stock markets are set to give up most of their Tuesday gains at opening, pending any sign from Powell that the economic trajectory will end up with the Fed tightening policy by less than currently expected.

By 06:15 a.m. ET, Dow Jones futures were down 361 points, or 1.2%, while S&P 500 futures were down 1.4% and Nasdaq 100 futures were down 1.7%.

Stocks likely to be in focus later include Altria (NYSE:MO), after the Biden administration published a plan that would force tobacco companies to remove most of the nicotine from cigarettes, weakening their habit-forming tendencies. Also of interest will be Toyota, which flagged attempts to raise output through September, despite ongoing problems with supply chains.

4. U.K. CPI hits new high as rail strikes continue

Inflation in the U.K. rose to another 4-decade high of 9.1% in May, as food and energy prices continued to take big bites out of consumers’ disposable income. Core inflation undershot expectations, accordingly, as spending on non-essentials was pared back.

Pipeline pressure in the system remains high, with factory gate prices rising 15.7% on the year and another 1.6% on the month. Developments aren’t being helped by the sustained weakness in sterling, which fell as low as $1.2176 before paring losses.

The U.K. is in the middle of a three-day national rail strike, one that could set an important precedent for this year’s round of public-sector wage increases. One regional chapter of the train drivers’ union RMT has agreed in principle to accept an offer of a 7.1% pay increase.

Separately, a new study found that Brexit had left the U.K. economy less open and competitive than before.

5. Oil lower as recession fears bite; Biden gas tax appeal seen likely

Crude oil prices continued to come off the boil as global recession fears clouded the demand outlook. Reports of a COVID-19 outbreak in the Chinese gambling hub of Macau did nothing to improve the mood.

By 06:30 a.m. ET, U.S. crude prices were down 4.7% at $104.71 a barrel, while Brent was down 4.2% at $109.84.

U.S. President Joe Biden is expected to call on Congress later to vote for a suspension of the federal gasoline tax, and to rally support for other measures that will cut prices across the U.S. As the measures are aimed at sustaining demand, it’s not clear that they will ultimately put downward pressure on global prices.

The American Petroleum Institute will report its weekly inventory data at 04:30 p.m. ET, a day later than usual due to Monday’s holiday.