European markets fall as rate hike fears resurface; The euro reached parity with the dollar

LONDON – European markets retreated on Monday on fears of more aggressive interest rate hikes from the Federal Reserve and the European Central Bank.

The pan-European Stoxx 600 was down 0.8% in early afternoon, with autos extending losses by 3% as most sectors and major markets traded in negative territory. Oil and gas stocks bucked the trend, adding 0.8%.

Risk sentiment was dampened by hawkish signals from ECB policymakers, with Bundesbank President Joachim Nagel telling a German newspaper that the ECB would need to raise interest rates even as risks of a recession in Germany increased.

Minutes from the ECB’s most recent policy meeting will be published on Thursday, while investors will look to Tuesday’s euro zone flash PMI.

Shares in the Asia-Pacific were cautiously mixed on Monday, although Chinese markets rallied after China’s central bank cut benchmark lending rates.

US stock futures fell in early premarket trade after the S&P 500 snapped a four-week winning streak on Friday, as Wall Street looked ahead to Fed Chairman Jerome Powell’s Friday comments at the central bank’s annual Jackson Hole Economic Symposium.

“We expect the market to look ahead to the Fed’s Jackson Hole meeting, which could lead to a sharp risk-off move. However, we think the message will be more nuanced and possibly reassuring,” said Steve Englander, head of global FX research and North America macro strategy at Standard Chartered.

“For the Fed, reducing inflation toward the target is non-negotiable. Chair Powell is likely to say that the Fed will raise rates as much as necessary and for as long as necessary to reduce inflation.”

There will be no major corporate earnings or economic data releases from Europe on Monday.