A soaring dollar weighs heavily on major currencies, Chair Powell's speech in focus

Early European trade saw the US dollar index climb 0.5% to 114.70 against a basket of major currencies. As the benchmark US 10-year Treasury yield breached 4% for the first time since 2010 - after topping 3.9% overnight - the dollar continued its relentless upward march. The yield on the policy-sensitive 2-year Treasury note was 4.2953%. There is an inverted relationship between yields and prices.

European stocks set to open lower

The European stock market is expected to open in negative territory on Wednesday as global markets decline due to economic concerns regarding inflation and the growth outlook, following a turbulent night in Asia-Pacific and overnight losses on Wall Street, major indexes in the region briefly declined by over 2%.

The benchmark S&P 500 index has fallen about 24% from its record close in January. Following the Fed's announcement that rates will remain high through 2023, the index erased its summer gains and recorded its lowest close in two years. For the first time since February 2020, the S&P 500 has declined for six consecutive sessions.

There have also been concerns raised in recent weeks about corporate profits taking a hit as a result of soaring prices as well as a weaker economy. Among analysts, earnings per share expectations for the third and fourth quarters, as well as for the full year, have been cut. For the third quarter, analysts now expect the S&P 500 earnings per share to rise 4.6% year-over-year, compared with the 11.1% growth expected just a few months ago.

Yuan and rupee record new lows

On Wednesday, Asian currencies plunged while the dollar soared. Both the offshore and onshore Chinese yuan reached their weakest levels since 2008. There was also a record low for the Indian rupee. The Indian rupee weakened against the US dollar to a record low of 81.940 per dollar. At last check, it was trading at 81.905 per dollar. So far this year, the US dollar has strengthened nearly 10% against the Indian rupee.

Events of the day

GfK's consumer climate index fell to -42.5 for October, a sharp drop from the revised lower -36.8 in September.

Added to the region's woes was the news late Tuesday that Gazprom might seek to sanction Ukrainian gas pipeline operator Naftogaz Ukraine. Consequently, it would not be able to pay Ukraine's usual transit fees. In effect, this would lead to a suspension of physical shipments to the EU, effectively cutting off all supplies.         

This Wednesday's session will be an imperative one for investors to keep an eye on speeches by Lagarde, the president of the European Central Bank and members of the Federal Open Market Committee Bostic, Bullard, Powell and Bowman, as well as the release of goods trade balance and pending home sales figures.