European stock futures edge lower; hawkish Powell weighs on sentiment

© Reuters.

By Peter Nurse

Investing.com - European stock markets are expected to open lower Wednesday, taking their lead from the sharp losses on Wall Street overnight after Fed head Jerome Powell warned interest rates could go higher than expected.

At 02:00 ET (07:00 GMT), the DAX futures contract in Germany traded 0.1% lower, CAC 40 futures in France dropped 0.1%, while the FTSE 100 futures contract in the U.K. traded largely flat.

European equities are likely to take their lead from the weak close on Wall Street overnight, with the benchmark Dow Jones Industrial Average falling nearly 600 points, or 1.7%.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Federal Reserve Chair Jerome Powell said in prepared remarks to the Senate Banking Committee, at the start of his two-day testimony to Congress.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell added.

These comments pointed to an increased likelihood of a 50 basis point hike in March, a larger increase than the 25-bps raise that had been widely expected.

Back in Europe, European Central Bank President Christine Lagarde is scheduled to speak at an event organized by the World Trade Organization in Geneva later in the session.

Her comments will be studied carefully for clues of future monetary policy, especially as she guided towards a 50 basis-point hike over the weekend.

German industrial production rose 3.5% on the month in January, a rebound from the revised 2.4% fall the prior month, while retail sales in the euro zone’s largest economy fell 0.3% in the same month, an improvement from the 5.3% slump in December.

Revised euro zone gross domestic product figures for the fourth quarter are also due later in the session.

In the corporate sector, Adidas (ETR:ADSGN) announced Wednesday plans to slash its dividend as a consequence of the financial hit the sportswear giant took after the termination of its partnership with rapper and fashion designer Ye (Kanye West).

Oil prices were largely steady Wednesday as a surprise reduction in U.S. oil stocks helped balance out the hawkish comments from Fed chair Powell about likely further interest rate hikes.

U.S. crude stocks fell by about 3.8 million barrels in the week ended March 3, according to data from industry body American Petroleum Institute.

If confirmed by the official data later Wednesday this would be the first decline after 10 straight weeks of builds, and would suggest a tightening of supplies in this important market.

By 02:00 ET, U.S. crude futures traded 0.3% higher at $77.38 a barrel, while the Brent contract fell 0.1% to $83.21. Both benchmarks fell over 3% last session as investors braced for steeper U.S. rate hikes.

Additionally, gold futures fell 0.1% to $1,817.60/oz, while EUR/USD traded 0.1% lower at 1.0539.