US and European stock markets slumped Wednesday as inflation data and corporate reports stoked investor fears about recession and earnings.
News that UK inflation has spiked to a 40-year peak of nine percent in April helped push London stocks down 1.1 percent.
The figure also sent the pound sliding on worries that the cost-of-living crisis will spark a recession in Britain, in line with the Bank of England’s recent forecast.
In the eurozone, Frankfurt fell 1.3 percent and Paris shed 1.2 percent in value.
On Wall Street, the Dow was down 2.3 percent in late morning trading on worries high inflation will erode corporate earnings.
The tech-heavy Nasdaq Composite fell by 3.1 percent.
– Recession ‘increasingly inevitable’ –
“A recession is looking increasingly inevitable in the UK and other countries… if the inflation data does not improve,” OANDA analyst Craig Erlam told AFP.
“That does not bode well for equity markets.”
The technical definition of a recession is two quarters of economic contraction in a row.
Investors remain on red alert over decades-high inflation, which has surged around the world as Russia’s invasion of Ukraine fuels spiking energy and food prices.
That in turn has sparked interest rate hikes from major central banks including the Bank of England and the US Federal Reserve, as they seek to contain runaway prices.
Concerns that companies will have trouble were reignited by the latest earnings from US retailer Target, which saw its profits fail to meet analyst expectations despite higher-than-expected sales.
Target’s “report is a stark example of the profit margin pressures most companies are facing due to high inflation and it has stoked concerns about being stuck in a stagflation environment,” said market analyst Patrick O’Hare at Briefing.com.
Stagflation is when an economy experiences high inflation and little or no growth.
Target’s shares plunged by around a quarter.
The miss by Target follows a similar performance by rival Walmart and online retail giant Amazon, which suffered its first quarterly loss since 2015 at the start of this year.
“The big falls in shares of these retails … highlights the damage inflation is inflicting on the sector’s profit margins,” said Fawad Razaqzada at City Index.
“What’s more, consumers are getting squeezed as well and if they now start to cut back on spending then retailers could suffer even further,” he added.
Asian equities traded mixed on Wednesday, despite strong Wall Street gains after brisk US retail sales data, although strong data is likely to invite further interest rate hikes by the Federal Reserve.
The Fed’s monetary policy tightening has sent jolts through markets this year, deepening the apprehension of investors already roiled by China’s Covid-19 lockdowns and Russia’s invasion of Ukraine.
– Key figures at around 1530 GMT –
New York – Dow: DOWN 2.3 percent at 31,898.48 points
EURO STOXX 50: DOWN 1.1 percent at 3,598.84
London – FTSE 100: DOWN 1.1 percent at 7,438.09 (close)
Frankfurt – DAX: DOWN 1.3 percent at 14,007.76 (close)
Paris – CAC 40: DOWN 1.2 percent at 6,352.94 (close)
Hong Kong – Hang Seng Index: UP 0.2 percent at 20,644.28 (close)
Shanghai – Composite: DOWN 0.3 percent at 3,085.98 (close)
Tokyo – Nikkei 225: UP 0.9 percent at 26,911.20 (close)
Brent North Sea crude: DOWN 1.9 percent at $109.81 per barrel
West Texas Intermediate: DOWN 1.9 percent at $110.28 per barrel
Euro/dollar: DOWN at $1.0502 from $1.0550 at 2100 GMT Tuesday
Pound/dollar: DOWN at $1.2403 from $1.2493
Euro/pound: UP at 84.64 pence from 84.45 pence
Dollar/yen: DOWN at 128.19 yen from 129.38 yen
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