LONDON, Oct 12 (Reuters) – European shares were flat in early trade on Wednesday, while sterling recovered after hitting a 13-day low overnight as the Bank of England reiterated that it would end its emergency bond buying at the end of the week. .
Global equity markets have fallen sharply in recent days, hit by heightened fears of an economic slowdown amid warnings from the IMF and World Bank.
Asian shares were stuck near two-year lows, weighed down by signs that China will persist with its strict COVID-19 policies.
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The MSCI world equity index, which tracks stocks in 47 countries, was flat on the day at 0846 GMT, near the previous session’s two-year low (.MIWD00000PUS).
Europe’s STOXX 600 was down 0.1%, having fallen in the past four consecutive sessions (.STOXX).
“We’ve had a very rapid decline in the equity markets over the past few days, obviously to do with rising recession fears,” said Axel Rudolph, market analyst at IG Group.
“I think we’re seeing some short-covering and I wouldn’t be surprised if that feeds into the US markets later today as well, so people take a more neutral stance on Thursday’s CPI data.”
US producer price data at 12:30 GMT is expected to keep the Fed on course for rate hikes. Consumer price (CPI) data will be released on Thursday.
The British pound hit a 13-day low overnight after Bank of England Governor Andrew Bailey said pension funds and other investors hit by a rise in British gilt yields had just three days to go to fix their problems before the central bank ended their emergency. bond purchase scheme. Sterling fell more than a penny against the dollar after the remarks.
But the BoE has also privately signaled to lenders that it was prepared to extend support beyond Friday’s deadline if necessary, the Financial Times reported.
By 0849 GMT, the pound was up 0.8% on the day at $1.1045.
MARKET TENSION
Britain’s economy shrank unexpectedly in August, GDP data showed.
IG’s Rudolph said the tension in UK markets – which began when the British government announced its “mini budget” fiscal plans on September 23 – is contributing to broader negative market sentiment .
“It’s just another nail in the coffin in terms of sentiment and market sentiment has really taken a hit over the last few days,” he said.
Former US Treasury Secretary Larry Summers criticized the British government’s policy and communications, speaking at an investment conference in Sydney.
UK gilt yields rose across a range of maturities, with 2-year yields seeing the sharpest increase.
The euro was flat at $0.97075. Eurozone government bond yields also rose, following weakness in the UK gilt market.
The US dollar index was down about 0.1%. Overnight, the dollar broke above the 146-yen level for the first time in 24 years, prompting Tokyo authorities to pledge to intervene if necessary.
Minutes from the Fed’s latest policy meeting are also due later in the session.
The International Monetary Fund’s chief economist said on Tuesday that central banks’ fight against inflation may take another two years to play out, raising unemployment and reducing living standards for many around the world.
On Monday, the president of the World Bank and the managing director of the IMF warned of a growing risk of recession.
The war in Ukraine also weighed on market sentiment. The G7 promised to support Kyiv “as long as it takes”.
Oil prices recovered some of their losses, after falling 2% in the previous session.
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Reporting by Elizabeth Howcroft; Editing by Alex Richardson
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Elizabeth Howcroft
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