Wall Street is poised for a rebound, but recession risk is keeping investors cautious

LONDON, June 21 (Reuters) – Wall Street was expected to open higher on Tuesday and European stocks faced a second day of gains, recovering slightly from last week’s 17-month lows but on rate hike plans by major central banks and global recession risks kept investors cautious.

World stocks are up modestly so far this week, recovering from last week’s sharp sell-off that saw global stocks fall to their lowest levels since November 2020 as expectations of central bank tightening to combat high inflation led investors to do so prompted them to divest risky assets.

At 11:10 GMT Monday, the MSCI World Stock Index, which tracks stocks from 50 countries, was up 0.4% on the day (.MIWD00000PUS).

Sign up now for FREE unlimited access to Reuters.com

The European STOXX 600 was up 0.8% (.STOXX) and the London FTSE 100 was up 0.7% (.FTSE).

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

Still, analysts expect the recovery to be short-lived. Timothy Graf, head of macro strategy for EMEA at State Street Global Markets, said the upside is likely the result of markets overselling in recent weeks and relief that event risks like the Bank of Japan and Swiss National Bank meetings are over.

“I think it’s a pause in a trend where there’s this increasing probability of slowing growth, high inflation — maybe stagflation,” he said.

“I don’t think stock markets and corporate earnings prospects have really reflected that.”

Goldman Sachs said it now has a 30% chance of the US economy sliding into recession next year, up from a 15% previous forecast. Continue reading

The German industry association BDI lowered its economic forecast for 2022 and said that a halt to Russian gas supplies would make a recession in Germany inevitable. Continue reading

Earlier in the meeting, Reserve Bank of Australia Governor Philip Lowe signaled further rate hikes and said inflation was expected to hit 7% by the end of the year. Continue reading

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

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

The US 10-year Treasury yield was 3.2844%, down from last week’s peak of 3.495% – the highest since 2011 – which came on the same day the Fed hiked rates by a massive 75 basis points.

The Japanese yen, which had fallen sharply in recent months, fell further to $135.97 – the weakest yen since 1998.

Japan’s Prime Minister Fumio Kishida said the central bank should maintain its current ultra-loose monetary policy. This makes it an outlier among other major central banks. Continue reading

Oil prices rose as investors focused on tight supplies of crude oil and fuel products. Brent crude futures were up 1.1% to $115.38, while US West Texas Intermediate (WTI) crude futures were up 1.4% to $111.13. Continue reading

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

Bitcoin is up about 3% on the day to $21,173 after stabilizing slightly since falling as low as $17,592.78 over the weekend. Cryptocurrencies have increasingly become a measure of risk appetite, Graf von State Street said.

Sign up now for FREE unlimited access to Reuters.com

Reporting by Elizabeth Howcroft; Edited by Louise Heavens and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.