Following a painful week, stock markets tried to erase some losses. Still, they came under renewed pressure during the European hours on Friday as investors stayed cautious while also digesting a hawkish message from the Federal Reserve that pushed equities south nearly across the board.
After a mixed start to the session, European indexes dipped back into negative territory, with US stock index futures nudging lower again. Adding to a downbeat tone in the markets, fresh data showed that the German economy shrunk by 0.7% in the fourth quarter when compared to the expectations of -0.3%. In comparison, the annualized figure dropped to 1.4% from the previous reading of 2.5%.
Furthermore, a separate report showed that the Eurozone economic sentiment indicator eased in January to 112.7 versus 114.5 expected. The figures showed that Europe’s largest economy and sentiment in the region were hit by the spread of Omicron and the associated restrictions.
In contrast, the US economy grew 6.9% in the final quarter of 2021, well above the forecast for a 5.5% growth, adding to the widening monetary policy divergence between the ECB and the Fed, especially as the US central bank also plans to shrink its balance sheet.
It looks like global stocks will stay on the defensive in the short term as investors are now pricing in a more aggressive monetary policy tightening in the United States. At the same time, also keep monitoring developments in geopolitics.
On this front, Russian Foreign Minister Sergei Lavrov said that there would be no war with Ukraine, but they will not allow ignoring their interest. He also noted that they expect to meet US Secretary of State Antony Blinken in the next couple of weeks.