Recession angst triggers worst day of year for European stocks

Stocks and oil prices dipped on Thursday after weak U.S. consumer data rekindled global recession worries, while Japan’s yen reared up again as traders took fresh punts that the Bank of Japan will soon be tightening policy.

A sharp 1.4% slide in European stocks (.STOXX) was shaping up to be their toughest day of the year so far and combined with an even worse session for Toyko (.N225) left the main all-world indexes (.MIWD00000PUS), (.FTGEISAC) facing their first three-day losing streak since mid-December.

Wall Street futures were pointing down more than 0.5% too, while Benchmark 10-year U.S. Treasury yields, which tend to drive global borrowing costs and fall when bond prices rise, were at their lowest since September, reported Reuters.

Oil prices dropped back as much as 1% after a 10% rally so far this year, and industrial metal copper skidded from a six-month high that has been fuelled by resource-hungry China abandoning strict Covid-19 restrictions.

“We actually think that the recession and the corporate earnings season that we are just at the start of ... are going to weigh on the markets,” Close Brothers Asset Management Chief Investment Officer Robert Alster said, referring to the coming months.

“The retail sales data from the U.S. and places like the UK are going to be a bit weak for a while,” he added. “But never ever underestimate the U.S. consumer, that is an import investment rule. Let’s see a few more months (of data).”

In the currency markets, the yen rose 0.7% to 127.95 per dollar, unwinding some of its drop the previous day when, to the surprise of markets, the Bank of Japan (BOJ) stuck firmly to its approach of ultra-low interest rates.

The BOJ has pursued super-easy policy settings for decades in an attempt to generate inflation and growth, but there are doubts it can keep that up, and traders have been selling Japanese government bonds and buying yen to bet on a shift.

“There’s an intense amount of speculation in the market that now that the January (BOJ) meeting has happened without any changes ... that we’ll see something in March,” said Shafali Sachdev, head of FX, fixed income and commodities in Asia at BNP Paribas Wealth Management in Singapore.

April was another possibility, she added, since by then the BOJ would have a new governor. “My guess would be that more speculators would look to build positions going into these meetings.”