LONDON, June 29 (Reuters) – Global stock markets fell for the second day in a row on Wednesday and bond yields fell sharply due to growing fears that policymakers pledging to cut inflation will dump their economies on the recession.
A succession of weak data releases in Europe and the United States has not stopped central banks from doubling hawk rhetoric. There are likely to be more things later on Wednesday when European Central Bank, US Federal Reserve and Bank of England officials speak at a central bank forum.
Tuesday’s data showed U.S. consumer confidence fell to a 16-month low in June, but several Fed policymakers promised further rapid interest rate hikes, citing the need to control inflation “out of control.” Read more
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These US figures, after a series of terrible consumer confidence data across Europe, caused sharp falls in Wall Street, which caused the S&P 500 and Nasdaq indices to fall by 2% and 3% respectively ( .SPX), (.NQC1).
This weaker pace was maintained on Wednesday, sending an ex-Japan Asian index 1.4% lower (.MIAPJ0000PUS), while a pan-European equity index (.STOXX) fell 0.3%, with a three-day rise.
US and German 10-year bond yields fell between 2 and 4 basis points (bp), with the former falling by about 30 bp from mid-June highs.
The deterioration in consumer sentiment clearly points to a recession, Citi told its customers.
After 7.5% -7.9% annual inflation in the German provinces, a reading of 8% in June is expected for the country at the end of the day, compared to 7.9% in May. Meanwhile, Spanish annual inflation reached 10.2% in June, from 8.7% in the previous month and the first time it has exceeded 10% since 1985.
Paul O’Connor, head of Janus Henderson’s multi-asset team in London, predicted “stormy” markets while questions about growth and inflation persisted.
“The problem is that the level of inflation is so problematic in so many parts of the world and we are so far away that central banks can declare that the job is done,” O’Connor said.
“We will certainly get growth rebates over the summer, but we will also have a growing perception of the risk of recession and I don’t think the markets are priced entirely for that.”
Sentiment had risen on Tuesday in the early hours of the news that China was reducing quarantine requirements for incoming passengers in a major relaxation of its “zero COVID” strategy. Read more
While shares of the Chinese stock market, including property, rose gains on Wednesday, the positive impact of the news largely faded: Chinese blue-chips, which hit four-month highs on Tuesday, fell 1.5% and Hong Kong lost 2% (.CSI300), (.HSI).
“Inevitably, markets tend to overreact to this kind of news,” said Carlos Casanova, UBP’s senior economist in Hong Kong. “In order for this to be sustainable, we really want these measures to materialize into a real reopening.”
The S&P 500 and Nasdaq futures fell 0.15% to 0.25% respectively at 10:00 GMT.
OIL AND DOLLAR
Fears of inflation are being further fueled by oil prices, which extended their rise to a quarter of a day, sending Brent crude futures above $ 117 a barrel.
“The market is caught in the push between the current deterioration of the macro context and the imminent threat of a recession, in the face of the most solid fundamental oil market configuration in decades, perhaps ever,” said Mike Tran of RBC Capital.
The OPEC + group of crude exporters began a two-day meeting on Wednesday, but it seems unlikely that major policy changes will be made, as UAE Energy Minister Suhail al-Mazrouei indicate that your country is approaching capacity. Read more
Market concern is driving a renewed supply for the dollar, which raises it to a one-week high against a basket of currencies.
The euro remained stable against the green dollar at $ 1.0514, while the yen at $ 136.43 fell 0.2%, approaching last week’s 24-year low of 136, 7.
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Report by Sujata Rao in London and Sam Byford in Tokyo; Editing by Nick Macfie and Alex Richardson
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