Asian and European stock markets suffered losses on Wednesday mainly on renewed fears that sharp rate hikes aimed at tackling runaway inflation could trigger a recession, traders said.
The losses came after a dismal US consumer confidence report roiled Wall Street on Tuesday.
US stocks stabilized on Wednesday, with the Dow gaining 0.3 percent while the tech-heavy Nasdaq fell slightly.
Sentiment in Europe was also rocked by data showing that Spanish inflation shot to a 37-year high of 10.2 percent in June on rising energy and food prices.
The news sent the Madrid stock market down 1.3 percent, with Frankfurt posting a similar loss. Paris lost 0.8 percent. London managed to break into the green and show a small win.
“So much for the big stock market comeback. Another day, another red sea in the market,” said Russ Mold, Investment Director at AJ Bell.
The sell-off followed more than a week of global gains on hopes that any signs of contraction could give central banks room to slow their pace of monetary tightening.
But New York stocks tumbled on Tuesday on data showing US consumer confidence – a key engine of the world’s largest economy – had fallen to its lowest level in more than a year.
The data sparked persistent worries about the strength of the global economy and eclipsed news of a surprise move by China to reduce the quarantine period for inbound travelers.
That had fueled hopes of further easing, which could allow the country’s huge economy to recover faster.
– “down the drain” –
“Amid signs that consumer confidence is fading, worries that global growth could be going down the drain have returned to shake financial markets,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“Covid restrictions may have eased for international travelers to China as infection rates slow, but one global problem is being replaced by another – fear recessions are looming around the world.”
Fed officials on Tuesday tried to downplay the chances of a recession and expressed hope for a soft landing.
City Index analyst Fawad Razaqzada said there was a risk of high inflation and a recession, a phenomenon economists call stagflation.
“That’s the direction the global economy is going and there’s not much central banks can do about it,” he said in a note to clients.
“If they tighten the belt too tightly it will hit GDP, while loosening the belt will only fuel inflationary pressures.”
Oil prices rose on anticipation of demand growth as China lifts Covid restrictions and tight supplies following bans on Russian imports.
Observers warned that G7 plans for a price cap on Russian crude are unlikely to have a massive impact on benchmark levels.
– Key figures at 1330 GMT –
London – FTSE 100: Up less than 0.1 percent at 7,328.75 points
Frankfurt – DAX: minus 1.3 percent at 13,057.85
Paris – CAC 40: down 0.8 percent at 6,038.74
EURO STOXX 50: DOWN 0.8 percent at 3,521.70
New York – Dow: up 0.3 percent to 31,047.40
Tokyo – Nikkei 225: down 0.9 percent at 26,804.60 (close)
Hong Kong – Hang Seng Index: down 1.9 percent at 21,996.89 (close)
Shanghai – Composite: down 1.4 percent at 3,361.52 (close)
North Sea Brent crude: up 1.3 percent to $119.55 a barrel
West Texas Intermediate: up 1.3 percent to $113.24 a barrel
Euro/Dollar: DOWN at $1.0507 from $1.0519 on Tuesday
Pound/dollar: DOWN at $1.2143 from $1.2184
Euro/pound: up to 86.41p from 86.33p
Dollar/yen: up at 136.87 yen from 136.14 yen
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