Squawk Box Europe Express

President Emmanuel Macron loses his absolute majority in the French parliament to a leftist coalition and a resurgent National Rally. Germany has announced it will return to coal in a bid to secure energy supplies ahead of winter as Russia continues to cut gas output. Asian markets are in the red on the back of the worst weekly performance by the S&P 500 since March 2020. And Bitcoin claws back some losses following a sharp weekend sell-off which saw the world’s biggest cryptocurrency hit an 18-month low. 

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The Dow plunges to below the 30,000-mark for the first time since January last year following the Federal Reserve’s historic 75-bps rate hike. U.S. President Joe Biden says that a recession Stateside is still ‘not inevitable’ but he admitted that signs of an economic slowdown is weighing on the mood of the nation. In Luxembourg, German finance minister Christian Lindner tells CNBC that euro zone fragmentation is not a concern following a surge in bond yields within the bloc. The leaders of France, Germany, Italy and Romania visit Kyiv to demonstrate their support for Ukraine’s ‘eventual’ accession into the EU.  

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The Federal Reserve hikes interest rates by a historical 75 bps in what is its most aggressive move since 1994. Chairman Jerome Powell has suggested that July’s FOMC meeting could result in a similar move should rampant inflation show no signs of abating. The markets react immediately, with the Dow and the S&P 500 breaking five-day losing streaks. Asian stocks follow suit and European equities are set to do likewise. The ECB touts a new ‘anti-fragmentation tool’ in a bid to quell the recent bond market turmoil. Reaction, however, is muted following the central bank’s emergency meeting yesterday. The SNB is also now under pressure, warning that Swiss bank assessment has deteriorated. 

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U.S. Treasury yields achieve new highs while the S&P 500 sinks even further into bear market territory as investors anticipate more aggressive rate moves from the Fed. DoubleLine Capital’s Jeffrey Gundlach calls for a 200-bps interest rate hike while legendary investor Bill Ackman slams the U.S. central bank for losing control of inflation. We are live in Berlin at the world’s largest private equity event, SuperReturn International. Meanwhile in China, retail sales continue to fall but manufacturing picks up against expectation as Beijing authorities continue to rein the current Covid outbreak. And cryptocurrency exchange platform Coinbase sacks 18 per cent of its staff as a reported ‘crypto winter’ sets in for the sector.  

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The S&P 500 plunges into bear market territory while the 10-year Treasury yield spikes to decade highs. Goldman Sachs and JP Morgan adjust their outlooks ahead of an expected 75-bps rate hike while the CME puts the odds of such a Fed move at more than 95 per cent. Morgan Stanley CEO James Gorman believes the chance of a U.S. recession now stands at 50-50. And in crypto news, Bitcoin sinks to below $21,000 as frozen withdrawals spook investors, wiping out more than $200bn from the market since Friday’s session.  

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French President Emmanuel Macron's bid for an outright majority comes under threat, as the Left surges in the first round of National Assembly elections. Credit Suisse is reportedly placed on a watchlist by the U.K.'s FCA as the financial regulator says the Swiss bank has not done enough to address risk controls. Asian stocks and US futures move sharply lower, as inflation and recession fears push the two-year Treasury yield to a 14-year high, prompting some banks to forecast a 75 basis point Fed hike this week. In China, Beijing officials warn of an "explosive" Covid outbreak, while Shanghai starts yet another round of mass testing for the city's 25 million residents.

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Wall Street marks its worst day in more than three weeks as markets await a fresh read on US inflation, with CPI forecast to hold near 40-year highs. “There’s nothing to suggest a recession is in the works,” says U.S. Treasury Secretary Janet Yellen. She rejects suggestions that a downturn is on the way, highlighting that the labour market is strong. China bucks the global inflation trend, as input prices hit at 14-month low, while consumer price inflation comes in below forecasts for May.  The ECB pledges to raise rates by 25 basis points in July and leaves the door open to a more hawkish move in September, as the central bank significantly slashes growth forecasts and raises inflation expectations.

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Markets focusing on the ECB. President Christine Lagarde is expected to commit to a July rate hike, despite downgrading growth forecasts, as inflation hits a record high. Yields push higher, with Germany's 10-year bund yield hitting levels not seen since July 2014. Millions in Shanghai enter new lockdowns - just as China shows signs of recovery, with May exports coming in more than double expectations. Ukrainian President Volodymyr Zelenskyy calls on American corporate leaders to fully exit Russia, warning their taxes continue to help fund the Kremlin's war.

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Credit Suisse issues a profit warning, saying tough trading conditions for the investment bank will drag the group to a net loss in the second quarter. The World Bank warns of 70s style stagflation as it slashes its global growth forecasts, saying many countries will find it hard to avoid recession. U.S. Treasury Secretary Janet Yellen tells Congress the country faces an extended period of higher prices, while admitting the administration's earlier characterization of inflation was misleading. Former German Chancellor Angela Merkel defends her record, hitting back at criticism that she appeased Russian President Vladimir Putin during her 16 years in power. 

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UK Prime Minister Boris Johnson survives a confidence vote, but his leadership is rocked after more than 40% of his own MPs vote to remove him from office. Across in China, Didi Chuxing was up almost 25% amid a report Chinese authorities may allow the ride hailing companies app back into domestic app stores. The Australian dollar spikes as the central bank lifts rates by a bigger-than-expected 50 basis points, the largest single rate hike since the start of the century and the first move since 2013. Elon Musk threatens to walk away from his 44 billion dollar deal to buy the social media platform unless the group provides more information on fake accounts.

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