Wednesday June 22nd


Dow futures decline more than 400 points as market rebound fizzles

U.S. stock market index futures futures fell Wednesday, putting the major averages on track to give up some of the previous session’s sharp gains. Futures contracts tied to the Dow Jones Industrial Average fell 462 points, or 1.5%, while S&P 500 futures declined 1.7%. Nasdaq 100 futures dropped 1.8%. Those moves come as growing fears of an economic recession continued to weigh on investors. Federal Reserve Chair Jerome Powell will appear before Congress on Wednesday, kicking off two days of testimony, where he is expected to speak on the central bank’s plans to tamp down inflation, which has surged to 40-year highs. Last week, the Federal Reserve hiked interest rates by three-quarters of a percentage point, or its largest rate increase since 1994. Investors continued to deliberate whether the central bank can navigate a soft landing with some Wall Street banks recently raising their odds of a recession. Citigroup increased its odds of a global recession to 50%, pointing to data that consumers are starting to pull back on spending. “The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” read a note from Citigroup. Goldman Sachs believes a recession is becoming increasingly likely for the U.S. economy, saying that the risks of a recession are “higher and more front-loaded.” “The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” the firm said in a note to clients. Meanwhile, UBS said Tuesday in a note to clients that it does not expect a U.S. or global recession in 2022 or 2023 in its base case, “but it’s clear that the risks of a hard landing are rising.” “Even if the economy does slip into a recession, however, it should be a shallow one given the strength of consumer and bank balance sheets,” UBS added. On Tuesday, the Dow surged 641 points, or 2.15%. The S&P 500 added 2.45%, turning in its best day since May 4. The jump comes after the benchmark index slumped 5.79% last week in its worst weekly performance since March 2020. The Nasdaq Composite advanced 2.51% on Tuesday, following its tenth week of losses in the last 11 weeks. On the earnings front, KB Home will post results after the market closes on Wednesday. Shares in the Asia-Pacific region mostly traded lower on Wednesday, as economic fears continue to weigh on the market. Chinese markets tumbled. In Hong Kong, the Hang Seng index fell 2.56% to close at 21,008.34, and the Hang Seng Tech index dropped 4.37%. Alibaba slipped 4.16% and Meituan fell 4.57%. The Shanghai Composite declined 1.2% to close at 3,267.20, and the Shenzhen Component closed down 1.427% at 12,246.55. South Korea led losses, with the Kospi falling 2.74% to close at 2,342.81, and the Kosdaq dropping 4.03% to 746.96. SK Hynix was down 3.15% and Naver dropped 4.38%. Japan’s Nikkei 225 slipped 0.37% to 26,149.55 at the close, while the Topix was down 0.19% at 1,852.65. Oil prices tumbled on Wednesday amid a push by U.S. President Joe Biden to cut taxes on fuel to cut costs for drivers amid aggravated relations between the White House and the U.S. oil industry. Brent crude futures were down $5.02, or 4.4%, at $109.63 a barrel while U.S. West Texas Intermediate (WTI) futures fell $5.17, or 4.7%, to $104.34 per barrel. Earlier in the session, both contracts had shed over $6 each to hit their lowest levels since May 19 and 12, respectively. Biden on Wednesday is expected to ask Congress to greenlight a three-month suspension of the 18.4 cents per gallon federal tax on gasoline and call on states to suspend their fuel taxes, a senior administration official said. Lawmakers of both major parties have expressed resistance to suspending the federal tax. Gold rose on Wednesday as renewed fears of a recession bolstered bullion’s allure as a safe haven and countered pressure from a firmer dollar, while investors awaited monetary policy cues from the Federal Reserve. Spot gold reversed initial declines to rise 0.4% to $1,839.86 per ounce by 1145 GMT, while U.S. gold futures gained 0.2% to $1,841.70.