Global markets in the red as recession fears mount

London — Global stock markets slipped for the second straight day on Wednesday and bond yields inched lower on growing fears that policymakers bent on dampening inflation will tip their economies into recession.

A succession of weak data releases in Europe and the US hasn’t prevented central bankers from doubling down on hawkish rhetoric. More is likely later on Wednesday when the heads of the European Central Bank, the US Federal Reserve and the Bank of England speak at a central banking forum.

Data on Tuesday showed US consumer confidence dropped to a 16-month low in June, yet several Fed policymakers pledged further rapid interest-rate hikes, citing the need to tame “unbridled” inflation .

The US figures, which came after a raft of dismal consumer confidence data across Europe, triggered steep falls on Wall Street, with the S&P 500 and the Nasdaq indices down 2% and 3% respectively.

The consumer sentiment deterioration clearly points to recession, Citi told clients.

That weaker momentum carried into Wednesday, sending an Asian ex-Japan index 1.4% lower, while a pan- European equity index eased 0.3%, snapping a three-day rally.

US and German 10-year bond yields slipped 5-6 basis points, the former down more than 30 bps from mid-June high.

After 7.5%-7.9% annual inflation prints across German provinces, an 8% June reading is expected for the country later in the day, compared with 7.9% in May.

Paul O’Connor, head of Janus Henderson’s multi-asset team in London, predicted “stormy” markets as long as the growth- inflation question marks persisted.

“The problem is that the level of inflation is so problematic in so many parts of the world and we are a long way from central banks being able to declare the job is done,” O’Connor said.

“We will undoubtedly get growth downgrades [in the months to come] but we will also get rising perception of recession risk and I don’t think markets are fully priced for it.”

Sentiment had lifted early on Tuesday on news that China was easing quarantine requirements for inbound passengers in a major relaxation of its “zero Covid” strategy

While parts of the Chinese stock market, including property, extended gains on Wednesday, the positive impact of the news largely petered out; Chinese blue-chips, which hit four-month highs on Tuesday, slumped 1.5% and Hong Kong lost 2%

“Inevitably, markets tend to overreact to these sorts of news [easing of Covid restrictions] ,” said Carlos Casanova, senior economist at UBP in Hong Kong. “For that to be sustainable, we really want to see these measures materialise into actual reopening.”

US futures were flat.

Reuters