Asian and European stocks weaken on fears of consumer slowdown
European stock markets fell lower on Wednesday, with investors turning to government bonds as a refuge from mounting fears of an economic downturn.
After three gains, the regional Stoxx Europe 600 stock index fell 0.9 percent in early trades. The German Dax fell 1 percent and the FTSE 100 was 0.8 percent lower in London.
This followed heavy losses for major US stock indices overnight, after a lackluster US consumer confidence report fueled concerns about an economic slowdown.
In Asia, Hong Kong’s Hang Seng stock index fell 2.5 percent, while China’s technology stock sub-index lost 4.3 percent. Japan’s exporter-heavy Nikkei 225 stock meter fell 0.9 percent.
Central banks have moved to tackle inflation through aggressive rate hikes, raising concerns that the policy will curb corporate and household spending.
“We’ve already had a lot of weak US housing market data, we’ve had weak consumer confidence data from around the world because of rising prices, and business investment tends to respond to consumers,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.
“If inflation suddenly collapses completely and central banks think they’ve done enough, this could all be over soon,” he added. “But it can be a long, slow process to wait for central banks to think they’ve done enough.”
The yield on the 10-year US Treasury bond fell 0.07 percentage points to 3.14 percent as the benchmark government bond price rose. According to Tradeweb data, the 10-year German Bund yield fell 0.04 percentage point to 1.59 percent. Yields fall when bond prices rise.
Expectations of where US inflation will be in 12 months have reached an all-time high of 8 percent. After the Federal Reserve raised its key interest rate by an oversized 0.75 percentage point this month, several policymakers called for a similar-sized hike in July.
At the European Central Bank’s annual forum in Portugal on Tuesday, the bank’s president, Christine Lagarde, pledged to act “with determination and perseverance” to tackle inflation, which reached 8.1 percent in the eurozone in May.
“People are worried about how much demand could fall during this period when central banks are raising rates quite aggressively,” said Nitesh Shah, head of commodities and macroeconomic research for Europe at ETF provider WisdomTree.
The ECB, which has been experimenting with negative interest rates since 2014 to stimulate economic activity, is widely expected to push its key deposit rate above zero in September.
Oil benchmark Brent oil fell 0.8 percent to $117 a barrel. Against the dollar, the euro fell 0.3 percent to a week-long low of $1,049.