Global stocks cap worst week since March as data fuels recession fear

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Global stocks fell on Friday, capping their worst week since March as investors in the US and Europe fretted over the prospect of further interest rate increases and potential recession.

The FTSE All-World index, which tracks the largest companies globally, slid 1 per cent, bringing its weekly fall to 2.2 per cent — its worst performance since the US regional banking crisis began in March with the collapse of Silicon Valley Bank.

The Europe-wide Stoxx 600 and Wall Street’s benchmark S&P 500 also suffered their worst week since March. The S&P 500 dipped 0.8 per cent for the day and 1.4 per cent for a week shortened by the Juneteenth US holiday on Monday. The Stoxx 600 slipped 0.3 per cent on Friday and 2.6 per cent over the week.

The moves followed a week of hawkish signals from policymakers in the US and Europe, as central banks prioritised their battle against stubbornly high inflation even as several economic indicators pointed to a slowdown on both sides of the Atlantic.

“The sell-off today shows you that the market hadn’t quite accepted that we are now in a very different economic regime,” said Georgina Taylor, head of multi-asset at Invesco.

Investors who had become used to “policymakers riding to the rescue” in times of economic hardship “are all having to adjust, and that’s what keeps the volatility in markets”, she added.

Central banks in Switzerland, Norway and the UK this week raised their benchmark interest rates, while US Federal Reserve chair Jay Powell signalled two more quarter-point rate increases were likely by the end of 2023.

Meanwhile, a number of closely watched business surveys on Friday showed economic activity had stalled in the US and the eurozone, echoing analysts’ warnings that inflation-taming policies could come at a price of recession in large economies around the world.

Ricardo Amaro, senior economist at Oxford Economics, said “today’s report suggested that tight monetary policy is increasingly resulting in demand weakness” in Europe. He described the pace of the decline as “worrisome”, but said the latest surveys may be “exaggerating” the extent of the weakness, as other data had yet to show the same trend.

Investors eschewed risk assets for the safety of government bonds. The yield on the benchmark 10-year US Treasury fell 0.06 percentage points to 3.74 per cent, while the yield on Germany’s 10-year Bund dropped 0.14 percentage points to 2.35 per cent. Bond yields fall when prices rise.

Earlier, Japan’s Topix index dropped 1.4 per cent after an important gauge of the country’s consumer prices rose at its fastest pace in 42 years in May, increasing the challenges for the central bank as inflation has proved stickier than expected.

The core consumer price index, which excludes volatile energy and food prices but includes alcoholic beverages, increased at an annual rate of 4.3 per cent, the fastest pace since June 1981.