European benchmarks fell in early trading after shares in Asia finished lower, including in Japan, Australia, South Korea and China. US futures were also down.
France's CAC 40 lost 1.9% in early trading to 5,853.92, while Germany's DAX dove 2.3% to 12,989.70. Britain's FTSE 100 fell 1.2% to 7,066.66. US shares were set to drift lower with Dow futures at 30,037.00, down 1.6%. S&P 500 futures fell 1.9% to 3,698.00.
Japan's benchmark Nikkei 225 shed 0.4% to finish at 26,149.55. Australia's S&P/ASX 200 lost 0.2% to 6,508.50. South Korea's Kospi tumbled 2.7% to 2,342.81. Hong Kong's Hang Seng dropped 2.6% to 21,008.34, while the Shanghai Composite sank 1.2% to 3,267.20.
Stocks have been mostly sliding in recent weeks as investors adjust to higher interest rates that the Federal Reserve and other central banks are increasingly doling out to temper record-high inflation. Investors are worried that the Fed risks slowing economic growth too much and bringing on a recession.
The overnight rally on Wall Street will be taken with a pinch of salt as elevated inflation and risks to growth persist, Venkateswaran Lavanya at Mizuho Bank said.
What Powell will tell Congress on Wednesday is the first of two days of testimony as part of the central bank's semi-annual monetary policy report.
For now, the fundamental catalyst for a more sustained rebound seems fragile, with all eyes on Fed Chair Jerome Powell's testimony ahead to further drive expectations of policy outlook and inflation, Yeap Jun Rong, market strategist at IG in Singapore, said in a commentary.
The worries over inflation and interest rates have been worsened by a spike in energy prices following Russia's invasion of Ukraine. The price of US crude oil is up about 52% for the year. That has taken a bigger bite out of people's wallets at the gas pump and is prompting a slowdown in spending elsewhere.
Oil prices fell back on Wednesday, with benchmark US crude shedding $5.01 to $104.51 per barrel. Brent crude, the international standard, declined $4.78 to $109.87 a barrel.
The narrative in financial markets seems pretty clear. Inflation needs to be addressed and given that supply-side factors show no signs of easing, central banks are going to have to take the steam out of demand by tightening monetary policy. Whether that slowdown turns into a soft-landing or a recession remains to be seen, said Chris Turner, global head of markets at ING.
The lingering list of worries has made for an extremely turbulent market. Daily swings between gains and losses have been common and major indexes have sometimes shifted between sharp gains and losses on an hourly basis.
Last week, the Fed hiked its key short-term interest rate by triple the usual amount. It has also just begun allowing some of the trillions of dollars of bonds it purchased through the pandemic to roll off its balance sheet.
That should put upward pressure on longer-term interest rates and is another way central banks are yanking supports earlier propped underneath markets to bolster the economy.
The Fed's moves are happening as some discouraging signals have emerged about the economy, including sagging spending at retailers and soured consumer sentiment. The Fed could consider another such mega-hike at its next meeting in July, but Powell has said increases of three-quarters of a percentage point would not be common.
In currency trading, the US dollar inched down to 136.22 Japanese yen from 136.64 yen. The euro cost $1.0514, down from $1.0537.
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