Wall Street prepares for a rebound, but recession risks keep investors cautious

LONDON (Reuters) – Wall Street is set to open higher on Tuesday and European stocks are poised for a second day of gains, recovering slightly from last week’s 17-month lows, but plans by major central banks to raise interest rates and a global recession. The risks kept investors cautious.

Global stocks are up so far this week, rebounding from last week’s sharp sell-off that saw global stocks fall to their lowest levels since November 2020 as expectations of a tightening central bank policy to combat high inflation prompted investors to dump risky assets.

At 1110 GMT on Monday, the MSCI World Stock Index, which measures stocks in 50 countries, was up 0.4% on the day. (.MIWD00000PUS).

The STOXX 600 Index in Europe rose 0.8%. (.stoxx) The FTSE 100 index in London rose 0.7%. (.FTSE).

US markets, which were closed Monday for a holiday, are set to open higher, with both S&P 500 e-minis and Nasdaq futures up 1.7%.

However, analysts expect the bounce to be short-lived. Timothy Graf, head of macroeconomic strategy for EMEA at State Street Global Markets, said the move to the upside was likely a result of oversold markets in recent weeks and risk mitigation of events, such as the Bank of Japan and Swiss National Bank meetings, had passed.

“I think it’s a pause in what is still a trend where you have this increased potential for slower growth, higher inflation — the potential for stagflation — as a consequence,” he said.

“Stock markets and earnings prospects for companies I don’t think they really captured that.”

Goldman Sachs said it now believes there is a 30% chance of the US economy sliding into recession over the next year, up from its previous forecast of 15%. Read more

German industry association BDI lowered its economic forecast for 2022 and said halting Russian gas shipments would make a recession in Germany inevitable. Read more

Earlier in the session, Reserve Bank of Australia Governor Philip Lowe referred to an increase in interest rates and said that inflation is expected to reach 7% by the end of the year. Read more

European bond yields rose, with the German benchmark 10-year yield rising 12 basis points a day at 1.78%.

In the currency markets, the euro rose 0.4% to $1.05515, while the US dollar index was down 0.2% on the day at 104.07.

The US 10-year bond yield was 3.2844%, down from last week’s peak of 3.495% – its highest since 2011 – which came on the same day the Federal Reserve raised interest rates by a whopping 75 basis points.

The Japanese yen has fallen sharply in recent months to $135.97 – the weakest yen since 1998.

Japanese Prime Minister Fumio Kishida said that the central bank should maintain its current ultra-loose monetary policy. This makes it a remote area among the other major central banks. Read more

Oil prices rose as investors focused on tight supplies of crude and fuel products. Brent crude futures rose 1.1% to $115.38, while US West Texas Intermediate crude futures rose 1.4% to $111.13. Read more

Gold was little changed at around $1,832.6 an ounce.

Bitcoin is up about 3% on the day at $21,173, having settled slightly since dropping to $1,7592.78 over the weekend. Graf of State Street said cryptocurrencies are increasingly becoming a barometer of risk appetite.

(Elizabeth Hawcroft reports). Editing by Louise Heavens and Chizu Nomiyama

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