European Stock Futures Mixed; Caution Ahead of Jackson Hole Gathering

© Reuters.

By Peter Nurse

AiVIF.com - European stock markets are expected to open mixed Wednesday, with fresh hawkish comments from a Federal Reserve official prompting caution.

At 02:05 ET (06:05 GMT), the DAX futures contract in Germany traded 0.1% higher, but CAC 40 futures in France dropped 0.1%, and the FTSE 100 futures contract in the U.K. fell 0.1%.

The main European indices are expected to trade in narrow ranges Wednesday, after another Fed policy maker suggested the central bank’s aggressive monetary tightening was set to continue in September.

“It’s very clear” the Fed has to tighten monetary policy, Federal Reserve Bank of Minneapolis President Neel Kashkari said Tuesday in Minneapolis. “When inflation is 8% or 9%, we run the risk of unanchoring inflation expectations and leading to very bad outcomes.”

These comments, the latest of a series of hawkish Fed speeches, mean investors are wary ahead of the central bank gathering at Jackson Hole in Wyoming later in the week, expecting Fed chair Jerome Powell to deliver an aggressive tightening message and dash hopes for a rate cut next year.

Back in Europe, inflation is nearing double digits, gas prices are soaring as the war in Ukraine becomes six months old, while Eurozone business activity contracted for a second straight month in August, suggesting a recession is looming.

The economic impact on Germany, the Eurozone’s largest economy and main growth driver, of Russia's invasion of Ukraine will last years, influential economist Marcel Fratzscher of the German Institute for Economic Research said Wednesday. He added the impact could last until 2025 when Germany expects to have freed itself from all exposure to Russian gas.

Oil prices dipped Wednesday, handing back some of the previous session’s strong gains as traders reassessed the chances of an imminent output cut by the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+.

The market surged Tuesday after the energy minister of Saudi Arabia, the world’s largest producer and de factor leader of OPEC+, flagged the possibility of supply cuts to correct the recent oil price fall.

However, the group is already struggling to produce its monthly target, and an agreement between all the members to reduce revenue streams may prove to be a politically difficult sell.

Providing a floor to this session’s weakness, data from the American Petroleum Institute, an industry body, showed that U.S. crude inventories fell by 5.6 million barrels in the week to Aug. 19, far more than expectations for a drawdown of 450,000 barrels. Official data are due later on Wednesday.

By 02:05 ET, U.S. crude futures traded 0.1% higher at $93.62 a barrel, while the Brent contract fell 0.2% to $100.04. Both benchmarks gained just short of 4% during the previous session.

Additionally, gold futures fell 0.2% to $1,757.50/oz, while EUR/USD traded 0.3% lower at 0.9941.