Asian and European stock markets mostly nursed losses Wednesday on resurgent fear that sharp interest rate hikes, aimed at tackling runaway inflation, could spark a recession, dealers said.
The losses came after a gloomy US consumer confidence report had sent Wall Street tumbling on Tuesday.
US stocks stabilized on Wednesday, with the Dow adding 0.3 percent while the tech-heavy Nasdaq dipped slightly.
European sentiment was rocked also by data showing Spanish inflation rocketed to a 37-year peak 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 showing a similar loss. Paris shed 0.8 percent. London managed to break into the green and show a small gain.
“So much for the big stock market comeback. Another day, another sea of red on the market, ”said AJ Bell investment director Russ Mould.
The selloff followed more than a week of global gains caused by hopes that any signs of contraction could give central banks room to ease up on their pace of monetary tightening.
But New York stocks tanked Tuesday on data showing confidence among US consumers – a key driver of the world’s top economy – had fallen to its lowest level in more than a year.
The data re-ignited stubborn worries over the strength of the world economy and eclipsed news of a surprise move by China to slash the quarantine period for incoming travelers.
That had raised hopes for further relaxation that could allow the country’s giant economy to recover more quickly.
‘Down the drain’
“With signs that consumer confidence is seeping away, worries that global growth will go down the drain have returned to rattle financial markets,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“Covid restrictions may have eased for international travelers to China as infections rates slow, but one global problem is being replaced by another – fear that recessions are looming around the world.”
Fed officials on Tuesday tried to play down the chances of a recession, expressing hope of a soft landing.
City Index analyst Fawad Razaqzada said there is a threat of high inflation and recession, a phenomenon economists call stagflation.
“That is where the global economy is headed, and central banks won’t be able to do much about it,” he said in a note to clients.
“If they fasten their belts too tightly, this will hit GDP, while if they loosen their belts again, this will only fuel inflationary pressures further.”
Oil prices advanced on expectations of demand growth as China lifts Covid restrictions and owing to tight supplies following bans on Russian imports.
Observers warned that G7 plans for a price cap on Russian crude was unlikely to have a massive impact on benchmark values.
Key figures at around 1330 GMT
London – FTSE 100: UP less than 0.1 percent at 7,328.75 points
Frankfurt – DAX: DOWN 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 at 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)
Brent North Sea crude: UP 1.3 percent at $ 119.55 per barrel
West Texas Intermediate: UP 1.3 percent at $ 113.24 per barrel
Euro / dollar: DOWN at $ 1.0507 from $ 1,0519 Tuesday
Pound / dollar: DOWN at $ 1.2143 from $ 1.2184
Euro / pound: UP at 86.41 pence from 86.33 pence
Dollar / yen: UP at 136.87 yen from 136.14 yen