Oil prices slumped more than five per cent Monday on the rising prospects of a return of Iranian oil to the market and data showing China's economic recovery stuttering under Covid-19 restrictions and a slumping property sector.
Stock markets drifted lower and the dollar traded mixed as investors welcomed signs of cooling US inflation, which nevertheless remains at the highest level in decades.
"It's been an underwhelming start to the week in financial markets with the eternal optimism of investors clashing with the reality of Chinese economic data," noted OANDA senior market analyst Craig Erlam.
China's central bank slashed key interest rates in a surprise move Monday as a raft of data showed weakness in the world's second-largest economy.
The figures showed China's industrial production and retail sales growth for July came in lower than expected.
Industrial production was up 3.8 per cent year-on-year, but down from 3.9 per cent in June and well below analysts' forecasts.
"The risk of stagflation in the world economy is rising, and the foundation for domestic economic recovery is not yet solid," China's National Bureau of Statistics warned.
Stagflation refers to long-running high inflation combined with rising unemployment and weak growth.
Beijing's rigid adherence to a zero-Covid strategy has held back economic recovery as snap lockdowns and long quarantines batter business activity and a recovery in consumption.
"This weakness in the Chinese economy comes against the struggle to adapt to a zero-Covid policy, which the government shows little sign of relaxing, against a backdrop of rising cases," said CMC Markets analyst Michael Hewson.
"Problems in the property sector also aren't helping, where many home buyers are halting mortgage payments in protest at delays to the completion of new homes."
Iran talks
Meanwhile, Iran's foreign minister said Tehran will deliver its "final" proposal later Monday on talks to revive its 2015 nuclear accord with world powers, after Washington had accepted key demands.
A deal would mean that Iran's crude output of 2.5 million barrels per day would no longer be under international sanctions and help relieve supply constraints that have been pushing up prices.
Oil prices, which had already been sharply lower on the Chinese data, pushed even further lower and recording daily drops of more than five per cent.
Europe's main equity markets were lower in afternoon trading while Wall Street stocks fell back at the opening bell.
Market analyst Fawad Razaqzada at City Index and FOREX.com said talk of a US recession is back after a key manufacturing survey plunged into the negative, a signal of worsening business conditions.
Markets are also keenly awaiting the release Wednesday of the minutes from the Fed's last policy meeting in July for clues to the US central bank's interest rate plans.
Investors are concerned that after successive three-quarter point raises any further increases of a similar magnitude could choke off economic recovery.
The negative reading for the new orders question on the New York Federal Reserve's Empire State Manufacturing Survey, compared to the positive result from July, shows that the interest rate hikes may already be having an effect on slowing activity that has fuelled inflation.
Patrick O'Hare, analyst at Briefing.com, called lower stock prices a reflection "of weakening demand that comes with a weakening economy, and, by extension, a weakening in earnings growth prospects."
Key figures at around 1330 GMT
Brent North Sea crude: DOWN 5.1 per cent at $93.15 per barrel
West Texas Intermediate: DOWN 5.3 per cent at $87.23 per barrel
New York - Dow: DOWN 0.5 per cent at 33,610.11
London - FTSE 100: DOWN 0.2 per cent at 7,483.26 points
Frankfurt - DAX: DOWN 0.2 per cent at 13,769.73
Paris - CAC 40: DOWN less than 0.1 per cent at 6,550.45
EURO STOXX 50: FLAT at 3,776.02
Tokyo - Nikkei 225: UP 1.1 per cent at 28,871.78 (close)
Hong Kong - Hang Seng Index: DOWN 0.7 per cent at 20,040.86 (close)
Shanghai - Composite: FLAT at 3,276.09 (close)
Euro/dollar: DOWN at $1.0223 from $1.0261 Friday
Pound/dollar: DOWN at $1.2106 from $1.2135
Euro/pound: DOWN at 84.43 pence from 84.53 pence
Dollar/yen: DOWN at 132.63 yen from 133.50 yen
