Stocks Struggle and Oil Down on Recession and Rate Worries

On Wednesday, world stocks recorded declines yet again, as expectations of steep increases in interest rates by central banks on both sides of the Atlantic fanned recession fears and soured sentiment.

This also pushed prices of oil below $90 per barrel, as demand would fall should there be an economic recession.

Markets struggling

European shares extended their losses, while Wall Street was struggling to hold onto the gains made early in the session.

This was primarily because of worries that demand would take a hit because of global monetary policy tightening and bring down the economy.

Market analysts also took the growth risks into account and warned of a possible recession in the United States.

They said that composite tracking models indicate that there is a marked rise in the chances of an economic recession taking place in the next year.

However, they also added that immediate risks would be on the lower side, as the continued decline in prices of gasoline would give real incomes a boost and it would also drive up the gross domestic product (GDP) for the third quarter.

Indexes down

There was a 0.65% drop in the MSCI’s world equity index, which saw its total decline in the year reach 18.8% because the rising energy prices, the war in Ukraine and increasing interest rates have hurt risky assets.

There was a 0.8% drop in the US S&P 500 index, while a 0.9% decline was also seen in the Dow Jones Industrial Average. As for the Nasdaq Composite, it shed about 0.6%.

By closing time on Wednesday, all three major US indexes had recorded their biggest percentage declines in a month in August, which had not been seen since 2015.

Since mid-August, there has been a more than 8% decline in the S&P 500 index alone. There was also a 1.1% drop in the European STOXX 600 index, which took it to a six-week low, and yearly losses to 15%.

Economic data

On the economy front, the news remained grim as overnight data showed that factory activity in the second-largest economy in the world recorded its second monthly fall.

The factory activity in China declined for the second month in a row because of the worst heat waves seen in the country in decades, new COVID-19 infections as well as the property sector rout.

There was also a rise in the headline inflation in the euro zone for the month of August to another record high, as it beat expectations.

Moreover, it also solidified the possibility of a 75 basis points increase in the interest rate by the European Central Bank (ECB) in its meeting on September 8^th.

On Wednesday, Russia stopped its gas supply to Germany through the Nord Stream 1 pipeline for three days citing maintenance, which fanned fears that it would not resume supply.

This added to energy rationing concerns in the coming months in some of the richest countries in the region. Consumers are already suffering from a cost of living crisis due to the energy crunch.