Stock markets collapse temporarily halted

US stock index futures continue their rally, while the dollar’s surge has stalled. Markets were hit this week by shifting expectations of monetary tightening by the Federal Reserve and concerns about global economic growth.

The S&P 500 and the Nasdaq 100 rise for the second day in a row. Investors’ expectations of how aggressively the Federal Reserve will raise interest rates to fight inflation have been lowered. Wells Fargo & Co. shares fell in premarket trades. Analysts decreased earnings estimates for the second quarter. This heightened concerns about the outlook for corporate earnings after yesterday’s disappointing results from JPMorgan Chase & Co. and Morgan Stanley.

Automakers and energy companies boosted the Stoxx50 index. Shares of luxury goods group Richemont plunged by more than 5% after reporting earnings overshadowed by fears of lower demand in China.

Italy’s benchmark index rallied after the country’s president rejected an offer from Mario Draghi to resign as prime minister in a bid to avert a political crisis. Most European bonds surged due to an increase in Italy’s debt premium against German bonds.

The UK’s FTSE 100 Index has weakened considerably amid the political crisis in the country:

Treasury bonds rose, and the 2-year and 10-year Treasury yields remained inverted. This is considered a signal of recession.

Investors are wondering how aggressive the Fed will have to be to curb inflation and the possible consequences for the economy. A rate increase of one percentage point in July became less probable after the Fed mentioned a 7-basis-point hike in its latest commentary. The pace of monetary tightening and liquidity cuts still threatens to exacerbate market volatility following sharp losses in equities and bonds in 2022.

Federal Reserve Governor Christopher Waller backed raising rates by 75 basis points this month. He also said he could go bigger if warranted by the data. His comments were echoed by St. Louis Fed President James Bullard. He said that he favored hiking by 75 basis points later this month.

China’s economic growth slowed in the second quarter after Covid lockdowns. Meanwhile, consumption picked up in June amid easing restrictions. The government refrained from injecting funds into the banking system while keeping borrowing costs unchanged. Asian stock market was hit by a plunge in Chinese tech stocks amid fresh fears of new regulatory hurdle.

Meanwhile, about $1.9 trillion in options expire on Friday. This could lead to some volatility in the markets. Investors are also looking ahead to the next series of US bank earnings reports amid bullish earnings season.

What to watch this week:

G-20 finance ministers, central bankers meet in Bali, from FridayAtlanta Fed President Raphael Bostic speaks, Friday