Recession fears will lead the U.S. stock market to fresh losses at the open, and data on jobless claims, home sales and manufacturing activity could hit it further. Bond yields are falling as recession fears override inflation fears, while the new reports reinforce speculation that the euro zone will end the year with a positive interest rate. Sri Lanka has become the first sovereign debtor to default in 2022, and is unlikely to be the last. Here’s what you need to know about the financial market on Thursday, May 19.

1. A SPIRIT OF SURRENDER IS IN THE AIR AMONG STOCKS

There’s more than a whiff of capitulation in the air Thursday, as stock indexes in the U.S. look set to continue the decline that began at Wednesday’s open, unable to shake off fears of a slowdown and even a possible recession caused by poor retailer earnings reports this week.

“Over the last couple of years, it’s been the size of earnings that has been the main driver of inflation in the U.S., and so when the market starts to think about what a lower inflation rate might mean, that might warrant a rethink on equity valuations,” Paul Donovan of UBS Global Wealth Management said in a morning briefing.

By 06:15 a.m. ET (10:15 a.m. GMT), Dow Jones futures were down 417 points, or 1.3 percent, while S&P 500 futures were down a similar amount and Nasdaq 100 futures were slightly behind, down 1.4 percent.

That leaves the Dow and S&P opening at their lowest levels in 14 months and the Nasdaq at an 18-month low. Sentiment is summarized by reports that Melvin Capital, a hedge fund known for betting against meme stocks last year, is shutting down and returning money to investors.

2. PHILADELPHIA’S FRB, JOBLESS CLAIMS AND EXISTING HOME SALES WILL FURTHER TEST NERVES ON THE UPSIDE

The economic calendar could well cause further market turmoil a little later with the release of weekly jobless claims, existing home sales for April and the Federal Reserve Bank of Philadelphia’s monthly business survey.

The Empire State manufacturing index from the FRB New York, a drop in homebuilder confidence and April housing starts figures released earlier this week are unfavorable for today’s reading.

The FRB Philadelphia report and jobless claims are due out at 08:30 AM ET (12:30 PM GMT), while home sales data is due out at 10:00 AM ET (2:00 PM GMT). Given the traditional relationship between earnings and layoffs, the retail sector’s warnings could mean that initial jobless claims will start rising relatively soon from their current trend of around 200,000.

By then, many other retailers will have a chance to either calm investors’ nerves or rattle them again. Kohl’s (NYSE:KSS), BJ’s Wholesale Club, and Canada Goose will report before the open of trading.

3. BOND YIELDS FALL AS RECESSION FEARS OUTWEIGH INFLATION FEARS

If you need proof that investors are suddenly more afraid of growth than inflation, take a look at the bond market.

U.S. bond yields fell sharply Wednesday in a frenzy of safe haven buying amid comments from Federal Reserve officials, who in their own way said they are willing to move the interest rate above the neutral rate (somewhat vaguely defined) to bring inflation down.

By 06:20 am ET (10:20 GMT), the yield on interest rate-sensitive 2-year Treasuries had fallen 4 basis points to 2.62%, while the 10-year bond yield tested a 3-week low of 2.83%.

Eurozone long-term bond yields also fell across the board amid fresh reports that the ECB may raise interest rates 3 times before the end of the year. The euro stabilized just above $1.05.

4. SRI LANKA’S DEFAULT.

Sri Lanka has officially defaulted on its foreign debt, buckling under a series of general turmoil and economic mismanagement that has led to widespread food and energy shortages and rampant inflation. The country’s inflation is expected to peak at around 40 percent, as central bank governor Nandalal Weerasinghe told a briefing.

The South Asian island nation became the first country to officially default on its debt in 2 years, but is unlikely to be the last in 2022 given the shock over rising global food and energy prices.

The country has already begun debt restructuring talks with the International Monetary Fund. Their progress will largely depend on the position of China, whose state-owned banks are the largest direct creditors of the island nation.

This news sheds light on Egypt’s central bank decisions later, given the country’s dependence on foreign food and oil.

5. OIL PRICES FELL DUE TO CONCERNS ABOUT THE OUTLOOK FOR DEMAND

Crude oil prices fell amid widespread fears of global growth. The news that China is in talks with Russia to buy oil for its strategic reserves also impacted oil prices as it suggested that Russian supplies would not be completely lost to the global market.

The view is also strengthening that the EU’s proposed package of sanctions against Russia will by no means lead to a complete halt of Russian exports to Europe, leaving European buyers to cover a slightly less acute supply shortage.

By 06:30 am ET (10:30 GMT), the price of WTI crude was down 1.6% to $105.36 per barrel, while Brent crude was down 1.2% to $107.85 per barrel.