European and Asian markets took a beating on Thursday after Wall Street suffered one of its worst blows in two years on fears of a recession after decades of high inflation.
Retailers’ bleak earnings reports have heightened concerns about consumer resilience at a time of rising interest rates, soaring energy prices, lockdowns in China and the war in Ukraine.
“Inflation is catching up and profit margins are taking a hit. But soon those higher costs will be passed on and consumers will stop saving and become more cautious about their spending,” said Craig Erlam, senior market analyst at OANDA.
“The question is whether we will see a slowdown or a recession,” he said.
Leading European and Asian stock indices closed in the red.
On Wall Street, the Dow was lower in late morning trading, but both the broader S&P 500 and tech-heavy Nasdaq Composite were higher.
Shares in Chinese tech giants plunged after Tencent reported disappointing earnings, sparking increased concerns about China’s economic prospects.
Tencent shares fell more than eight percent in early trading before curbing losses somewhat, a day after it posted its slowest sales gain since its IPO in 2004.
Among other tech titans, Alibaba fell more than six percent.
On Wall Street on Wednesday, all three major US indices plunged, with the Dow falling more than 1,150 points, or 3.6 percent.
The Nasdaq fell 4.7 percent at the close.
“Consumer confidence is likely to fall further as incomes come under pressure. Those big declines in stocks from retailers — Target and Walmart — and others like Amazon and Apple that we saw on Wednesday certainly point in the direction of this trend,” he said. Fawad Razaqzada, market researcher. analyst at City Index and FOREX.com.
“Inflation is not likely to decline significantly any time soon, while the economic outlook also looks bleak.”
Michael Hewson, chief market analyst at CMC Markets, said the US dollar also suffered “on Thursday from lower interest rates as concerns about the resilience of the US economy mount over the course of the year.”
In some of his most aggressive remarks yet, Federal Reserve Chairman Jerome Powell said this week the US central bank would raise interest rates until there is “clear and convincing” evidence that inflation is declining.
But higher borrowing costs increase debt, putting further pressure on consumers and businesses.
The United States is experiencing the fastest rate of inflation in four decades, as is Britain, which has prompted the Bank of England to raise interest rates as well.
(Except for the headline, this story has not been edited by NDTV staff and has been published from a syndicated feed.)