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Asian and European stocks weaken on fears of consumer slowdown

European stock markets turned lower on Wednesday with investors turning to government bonds as a haven from mounting fears of an economic downturn.

Following three sessions of gains, the regional Stoxx Europe 600 share index fell 0.9 per cent in early dealings. Germany’s Dax fell 1 per cent and the FTSE 100 was 0.8 per cent lower in London.

This followed heavy losses for the main US share indices overnight, after a lacklustre US consumer confidence report fuelled concerns about an economic slowdown.

In Asia, Hong Kong’s Hang Seng share index fell 2.5 per cent while its sub-index of Chinese technology shares lost 4.3 per cent. Japan’s exporter-heavy Nikkei 225 equity gauge dropped 0.9 per cent.

Central banks have turned to tackling inflation through aggressive interest rate rises, raising concerns the policy will curb spending by businesses and households.

“We’ve already had a lot of weak data from the US housing market, we’ve got weak consumer confidence data from around the world because of rising prices, and business investment tends to react to the consumer,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.

“If inflation suddenly absolutely collapses and central banks think they have done enough, this could all be over quickly,” he added. “But it could be a long, slow process waiting for central banks to think they have done enough.”

The yield on the 10-year US Treasury bond fell 0.07 percentage points to 3.14 per cent as the price of the benchmark government debt security rose. Germany’s 10-year Bund yield fell 0.04 percentage points to 1.59 per cent, according to Tradeweb data. Yields fall when bond prices rise.

Expectations of where the US inflation rate will sit in 12 months’ time have hit a record high of 8 per cent. After the Federal Reserve raised its main funds rate by an extra large 0.75 percentage points this month, several of its policymakers argued for a similar-sized increase in July.

At the European Central Bank’s annual forum in Portugal on Tuesday, the bank’s president Christine Lagarde pledged to act in a “determined and sustained manner” to tackle inflation, which hit 8.1 per cent in the eurozone in May.

“People fear how much demand could fall in this period where central banks are raising rates quite aggressively,” said Nitesh Shah, head of commodities and macroeconomic research for Europe at ETF provider WisdomTree.

The ECB, which has experimented with negative interest rates to boost economic activity since 2014, is widely expected to lift its main deposit rate above zero by September.

Oil benchmark Brent crude dropped 0.8 per cent to $117 a barrel. The euro fell 0.3 per cent against the dollar to a one-week low of $1.049.

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