Fears of US recession sparks slide for European shares

A trader sits at his desk at the Frankfurt Stock Exchange. File Picture: Thomas Lohnes/Getty Images

European stock markets joined in a wave of selling, sparked by recession fears in the US and elsewhere. 

Fears of recession in major economies sent investors fleeing to the safety of gold as a haven of value and into eurozone government bonds, that helped push the yield on the Irish 10-year bond down to below 1.6%, and the German 10-year yield back below 1%.  

Stock markets in Paris and Frankfurt fell by as much as 1.5% and the Ftse 100 in London, which has a plethora of big international exporting companies, tumbled by 1.8%. 

"The sea of red is getting deeper by the day, as the reversal that started so dramatically yesterday picks up the pace," said Chris Beauchamp, chief market analyst at online broker IG. 

Growth worries are back to the fore, and investors are back to selling every bounce as they fret about a recession in the US and elsewhere."

Shares in foods and grocery maker Unilever, Guinness maker Diageo, household products maker Reckitt Benckiser, and British American Tobacco were down between 1.7% and 5.3%, while supermarket chain Tesco dropped by over 4%. 

In Ireland, building products maker Kingspan ended 3.5% lower; food firms Kerry Group and Glanbia fell by 3.4% and 2.7%, respectively; and Paddy Power owner Flutter closed 2% lower.              

In the US, supply chain woes continued to fuel inflation and growth concerns as Cisco Systems warned of persistent component shortages.

Data showed factory output in the US Mid-Atlantic region decelerated far more than expected in May with the business outlook for the six months ahead the weakest in more than 13 years, according to a regional Federal Reserve bank survey. 

US recession

Goldman Sachs now estimates a 35% probability of a US recession in the next two years, while Morgan Stanley sees a 25% chance of one in the next 12 months.

After plunging in the previous session, the major US stock indices were mixed, however. 

Traders are looking for a catalyst that will turn the market around as near-term bottom approaches, said Rick Meckler, president of hedge fund Liberty View Capital. 

"There's probably still enough fear among investors to see a few more downdrafts," he said. 

But I think we're starting to hit a point where prices seem more in line with economic conditions. We may shift from overwhelming pessimism to starting to look for hopefully some turns in the problems that we're facing." 

In yet another sign of rising prices, US spot power and natural gas prices soared to their highest levels in over a year in some US regions, as Americans cranked up air conditioners to escape an early spring heatwave. 

Germany's 10-year bond yield fell below 1% and US Treasury yields fell as continued softness in US economic data stirred growth concerns that the US Federal Reserve's aggressive monetary tightening may exacerbate.

The dollar fell across the board to extend its pullback from a two-decade high, as most major currencies, battered by the dollar's advance this year, drew some buyers.

The focus remained on what central banks will now do as they walk a tightrope of trying to regain control of inflation, which is now at 40-year highs in some countries, without causing painful recessions.

"We will have to discuss what we can do together in our respective areas of responsibility to avoid stagflation scenarios," German finance minister Christian Lindner said as he arrived for a two-day meeting of top central bankers near Bonn. 

Irish Examiner and Reuters