Global stock markets decline as economic data intensifies concerns regarding a recession

Stay informed with free updates on the Markets.

Subscribe to our myFT Daily Digest email and receive a roundup of the latest news in the Markets every morning.

Global stock markets experienced a decline on Friday, signaling their worst week since March. Investors in the US and Europe expressed concern over potential recession and the possibility of further interest rate increases.

The FTSE All-World index, which tracks the world’s largest companies, had dropped 0.8% by mid-afternoon, setting it on course for a weekly decline of 2.1% – the worst performance since the US regional banking crisis that began with Silicon Valley Bank’s collapse in March.

The Stoxx 600, a Europe-wide index, also had its worst week since March, with the S&P 500 in Wall Street projected to follow suit. The S&P 500 fell 0.6% for the day and 1.2% for the week, while the Stoxx 600 slipped 0.3% on Friday and 2.6% over the week.

These market movements were driven by a week of statements from policymakers in the US and Europe, indicating a hawkish approach as central banks focused on combating persistently high inflation, despite signs of an economic slowdown on both sides of the Atlantic.

“Today’s sell-off demonstrates that the market had not fully accepted the fact that we have entered a different economic regime,” explained Georgina Taylor, head of multi-asset at Invesco.

Investors, who had grown accustomed to policymakers intervening during economic hardships, are now having to adjust. This adjustment contributes to market volatility, Taylor added.

This week, central banks in Switzerland, Norway, and the UK raised their benchmark interest rates. Additionally, US Federal Reserve Chair Jay Powell signaled the likelihood of two more quarter-point rate increases by the end of 2023.

Meanwhile, several influential business surveys indicated a stagnation of economic activity in the US and the eurozone. These findings align with analysts’ concerns that measures to tame inflation may come at the expense of recession in major economies across the globe.

Ricardo Amaro, senior economist at Oxford Economics, commented on the situation, stating that “today’s report suggests that tight monetary policy is increasingly resulting in weakened demand” in Europe. He further described the pace of decline as “worrisome,” though he noted that other data has yet to confirm the same trend.

Investors sought refuge in government bonds as they steered away from risk assets. The yield on the 10-year US Treasury decreased by 0.06 percentage points to reach 3.74%, while Germany’s 10-year Bund experienced a 0.1 percentage point drop, settling at 2.34%. Bond yields typically decline as prices rise.

Earlier, Japan’s Topix index fell by 1.4% when an important indicator of the country’s consumer prices revealed its fastest pace of increase in 42 years in May. This poses additional challenges for the central bank, as inflation has proven to be more persistent than expected.

The core consumer price index, which excludes volatile energy and food prices but includes alcoholic beverages, rose at an annual rate of 4.3% – the highest since June 1981.