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Market Report: Fears about inflation and recessions rattle global markets

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Susannah Streeter

Market Report: Fears about inflation and recessions rattle global markets

  • Wall Street indices rack up worst falls in the first half of the year for decades.
  • Stocks in Asia take fresh tumbles as supply chain snarl ups persist.
  • Oil falls back, with Brent Crude at $108 a barrel amid worries about global growth.
  • European markets open lower as investors await latest inflation snapshot.
  • FTSE 100 falls 0.6% in early trade ahead of lending snapshot
  • Crypto crash shows no signs of reversing with Bitcoin below $20,000.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

‘’Fears rattling financial markets show little sign of subsiding, with investors spooked about signs of looming recessions, while inflation stays stubbornly high.

Fresh falls on Wall Street marked a miserable milestone with the S&P 500 tumbling in the first half of the year by 20.6%, a fall not seen since 1970. The tech-heavy NASDAQ, which has been wracked by volatility, has plummeted by a third this year and is on track for the biggest ever yearly drop.

There are concerns that, just like in the seventies era, demand and inflation won’t fall back easily, and that the Federal Reserve and other central banks will have to step on the accelerator of interest rate hikes to bring red hot prices under control. The risk is that could see economies slam into a brick wall of recession, with ripple effects around the world.

European indices have opened lower, amid nervousness ahead of the latest consumer prices snapshot due out later this morning. With inflation for the euro area already running at a record high of 8.1%, another super-hot reading for June is likely to weigh further on investor sentiment as it will heighten expectations the European Central Bank will take a much tougher stance in terms of future rate hikes.

Stocks in Asia have fallen into the red, with Japan’s Nikkei falling by 1.7% and Hong Kong’s Hang Seng falling by 0.6%. Although China’s manufacturing activity bounced back in June as Covid curbs eased, supply chain issues have affected the wider region. There was a slowdown in Japan and South Korea and in Taiwan manufacturing activity shrank amid shortages of materials and supply snarl ups. Expectations of sharply slowing demand in the global economy is crystallised in the retreating oil price which has fallen back to $108 dollars for a barrel of Brent Crude, declining for the third week in a row.

Consumer and business confidence is evaporating in many countries and with lockdown savings dwindling fast, the post pandemic spending spree is now waning, which is expected to hit corporate earnings. The FTSE 100 has opened 0.6% lower as investors brace for another temperature check on consumer confidence. Data from the Bank of England on consumer borrowing should give an indication about just how financially resilient consumers are feeling right now, with a snapshot due out on how much is being borrowed on credit cards and other personal loans. With concerns that the red hot housing market could be at a tipping point, the update on mortgage approvals from the BofE will also be closely watched, as a barometer of demand for housing.

The crypto price crash is showing little sign of reversing with Bitcoin still trading below the psychologically important $20,000 mark. The fortunes of the crypto wild west have followed equity markets closely, and have mirrored the downward trajectory of tech stocks in particular. Now speculators have taken fright at liquidity problems unfolding at highly leveraged companies operating in the crypto Wild West. ‘’

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