The global stock markets fell for the second consecutive day on Wednesday, and bond yields fell for the second consecutive day on Wednesday, due to fears that policymakers bent on dampening inflation will lead to the collapse of their economies.
A series of weak data releases in Europe and the United States has not 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 Bank of England speak at a central banking forum.
Data showed US consumer confidence dropped to a 16 month low in June, yet a number of Fed policymakers pledged further rapid interest-rate hikes, citing the need to tame unbridled inflation.
The US figures, after a raft of dismal consumer confidence data across Europe, triggered steep Wall Street falls, sending the S&P 500 and the Nasdaq indexes down 2 percent and 3 percent respectively.
A Asian ex-Japan index was 1.4 percent lower on Wednesday, while a pan-European equity index fell 0.3 percent, snapping a three-day rally.
The US and German 10 year bond yields fell 2 -- 4 basis points, the former down around 30 bps from mid-June highs.
Citi told clients that consumer sentiment deteriorated as a result of the recession.
An 8 percent June reading is expected for the country later in the day, compared to 7.9 percent in May after 7.5 percent -- 7.9 percent annual inflation prints across German provinces. Spanish inflation hit 10.2 percent in June, a decline from 8.7 percent the previous month and the first time it has exceeded 10 percent since 1985.
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 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 probably get growth downgrades over the summer but we will also get rising perception of recession risk and I don't think markets are fully priced for it. The futures for the S&P 500 and Nasdaq fell by 0.15 percent to 0.25 percent by 1000 GMT.
Oil prices extended their rise in a fourth day, causing inflation fears to rise further, sending Brent crude futures above $117 a barrel.
The market is stuck in the push-pull between the current deteriorating macro backdrop and the looming threat of a recession, against the strongest fundamental oil market set-up in decades, maybe ever, said Mike Tran, CFO at RBC Capital.
The OPEC crude exporters group started a two-day meeting on Wednesday but big policy changes look unlikely, with the United Arab Emirates Energy Minister Suhail al-Mazrouei already indicating his country is pumping close to capacity.
Market jitters are driving a renewed bid for the dollar, lifting it to a one-week high against a basket of currencies.
The euro was flat against the greenback at $1.0514, while the yen was 136.43 per dollar slipped 0.2 percent, approaching last week's 24 year low of 136.7.