Stocks waver, oil prices fall on recession fears

Stock markets wobbled and oil prices sank on Friday over growing fears that inflation-fighting interest rate hikes by central banks could trigger recessions.

Investors were shaken this week after the US Federal Reserve unleashed its biggest hike in borrowing costs for almost 30 years to tackle runaway consumer prices.

This was followed by the fifth straight hike by the Bank of England and the first in 15 years by the Swiss central bank, underscoring the growing global concerns about inflation.

The moves caused a global selloff on Thursday. US and European markets tried to stage a rebound on Friday, but some indices were back in the red later in the day.

On Wall Street, the Dow Industrial Average was back under 30,000 points approaching midday, but the broad-based S&P 500 and the tech-heavy Nasdaq were in the green.

European markets seesawed, with London in the red while Frankfurt and Paris were up in late afternoon deals.

“Worries about weakening earnings growth prospects have precipitated some of this week’s selling interest. Those worries have not gone away,” said Patrick O’Hare, analyst at Briefing.com.

Sentiment turned sour again as US official data showed industrial production in May had risen by just 0.2 per cent, much slower than April and weaker than expected.

Asian stock markets mostly closed lower Friday.

Meanwhile, the Federal Reserve on Friday signalled it will not let anything stand in the way of its battle to bring down the searing inflation that’s punishing American households.

“The Committee’s commitment to restoring price stability - which is necessary for sustaining a strong labor market - is unconditional,” the Fed said in its twice-yearly monetary policy report to Congress, referring to the U.S. central bank’s rate-setting Federal Open Market Committee.

Fed Chair Jerome Powell will testify in Congress next week, updating lawmakers on the Fed’s plans to fight inflation while also pursuing maximum employment.

The Fed raised its policy rate range to 1.50%-1.75% on Wednesday and published forecasts that show most policymakers support lifting that rate further this year to perhaps 3.4%, and higher in 2023. Economists warn that such sharp increases could spark a recession.

The report’s use of the word “unconditional” suggests that the Fed is willing to risk just that, in order to avoid what it sees as a far worse situation where inflation gets out of control and exerts far more damaging long-term harm.

Recession fears also gripped the oil market as WTI, the US benchmark, fell by 5.5 per cent to $111.12 per barrel. The international benchmark, Brent North Sea Crude, was down almost five per cent at $114.23.

Energy prices have soared since Russia invaded Ukraine, driven inflation higher, which has prompted central banks to spring into action.

Investors worry that while the rate increases can help tame inflation, they can have the adverse side effect of crimping economic growth.

“There is unlikely to be sustained relief from the sinking feeling that has hit financial markets this week, as worries rise countries around the world will not avoid falling into the economic pit of recession,” said Hargreaves Lansdown analyst Susannah Streeter.

“After the initial boost of optimism that the Federal Reserve was going to get a handle on inflation... concerns mounted that the price spiral was going to be an even harder nut to crack without fresh aggressive hikes.” The Bank of Japan, however, bucked the global trend on Friday as it stood by its decision not to raise its rate, sending the yen close to the lowest level against the dollar since 1998.

Officials in Tokyo insist that low rates are still needed to nurture a struggling economy, though the BoJ did say it “was necessary to pay due attention to developments in financial and foreign exchange markets”.

Stock markets have been tumbling for months as traders contemplate the end of the era of cheap cash that had sent share prices to record or multi-year highs.

Inflation worldwide stands at levels not seen for decades owing in particular to surges in energy and food prices.

Gold fell 1% on Friday and was on course to finish lower for a week in which a firming dollar and interest rate hikes from major central banks dented the safe-haven metal’s appeal.

Spot gold was trading at $1,840.60 per ounce by 10:29am, has lost 1.6% so far this week. US gold futures fell 0.5% to $1,841.40. gold is giving up some gains after Thursday’s big move due to the 1.2% rise in the dollar , said RJO Futures senior market strategist Bob Haberkorn.