As reported by Reuters, a string of weak data releases in Europe and the United States caused global stock markets to fall for the second day in a row on Wednesday, and bond yields to fall on growing fears that policymakers intent on dampening inflation will tip their economies into recession.
The central bankers are increasing their hawkish rhetoric. More are expected later on Wednesday, when the heads of the European Central Bank, the Federal Reserve of the United States, and the Bank of England speak at a central banking forum.
Consumer confidence in the United States fell to a 16-month low in June, according to data released on Tuesday, but several Fed policymakers pledged more rapid rate hikes, citing the need to tame “unbridled” inflation. Following a slew of dismal consumer confidence data from across Europe, the S&P 500 and Nasdaq indexes fell 2 percent and 3 percent, respectively.
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. U.S. and German 10-year bond yields slipped 5-6 basis points, the former down more than 30 bps from mid-June highs.
The consumer sentiment deterioration clearly points to a recession, Citi told clients. After 7.5%-7.9% annual inflation prints across German provinces, an 8% June reading is expected for the country later in the day, versus 7.9% in May.
According to Reuters, Paul O’Connor, head of Janus Henderson’s multi-asset team in London, predicted “stormy” markets as long as the growth-inflation debate raged on.
“The problem is that the level of inflation is so problematic in so many parts of the world, and we are still a long way from central banks declaring the job done,” O’Connor explained.
“We will undoubtedly see growth downgrades over the summer,” he says, “but we will also see a rising perception of recession risk, and I don’t think markets are fully priced for it.”
While some sectors of the Chinese stock market, including real estate, extended gains on Wednesday, the positive impact of the news faded – the Chinese blue-chip, which had hit four-month highs on Tuesday, fell 1.5 percent, and Hong Kong fell 2 percent.
Futures on Wall Street fell.