GLOBAL MARKETS-Recession fear triggers worst day of year for European stocks

By Marc Jones and Tom Westbrook

LONDON/SINGAPORE, Jan 19 (Reuters)Stocks and oil prices dipped on Thursday after weak US 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.T 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 US Treasury yields US10YT=RRwhich tend to drive global borrowing costs and fall when bond prices rise, were at their lowest since September. US/GVD/EUR

oil prices LCOc1 dropped back as much as 1% after a 10% rally so far this year, and industrial metal copper CMCU3 skidded from a six-month high that has been fueled by resource-hungry China abandoning strict COVID-19 restrictions. MET/L

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

In the currency markets, the yen JPY=EBS 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.”

Speculators did, however, give some respite to the BOJ in the bond market. After four days of huge BOJ spending to reel 10-year yields back inside the target band of 0.5% either side of zero, the yield JP10YTN=JBTC held at 0.41% on Thursday. JP/

RECESSION RISK

In Europe, there was plenty going on too.

European Central Bank president Christine Lagarde pushed up euro zone bond yields slightly by count the World Economic Forum’s Davos gathering that the bank would stay the course with rate hikes.

Minutes from last month’s ECB meeting were also due shortly, although Dutch ECB policymaker Klaas Knot, a noted hawk, had also been out saying markets should take more seriously guidance of rates rising in multiples of 50 basis points. GVD/EUR

Norway’s crown had ticked higher as its central bank kept its interest rates at 2.75%, but said they were likely to go up in March, while the New Zealand dollar NZD=D3 was down more than 1% after the surprise resignation or Prime Minister Jacinda Ardern’s who said she had “no more in the tank”.

S&P 500 Futures ESC1 were down 0.75% as the US open approached and close to breaking below the 50-day moving average.

On Wednesday, the S&P 500 .SPX had lost 1.6% after dates showed US manufacturing output had slumped last month and retail sales had fallen by the most in a year.

Microsofts announcement of 10,000 layoffs and hawkish comments from Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard added to the gloom, with both monetary officials expecting US interest rates above 5% this year.

Fed officials Lael Brainard and John Williams were due to make public appearances later. Netflix NFLX.OAmerican Airlines AAL.O and Procter & Gamble PG.N were reporting results, while housing starts numbers, weekly jobless claims and the Philadelphia Fed’s Manufacturing Survey will provide more color on the US economy’s health.

“The decline in retail spending and industrial production adds to the theme of the economy slowing and heading into recession in 2023, and pushes back on the soft-landing narrative dominating markets since January,” said National Australia Bank’s head of market economics, Tapas Strickland .

The dollar slipped into the red after its overnight rise as New York trading loomed. The Australian dollars AUD=D3 was still down 0.75% after data showed an unexpected fall in Australian employment last month, but the ECB’s talkers had lifted the euro EUR=EBS back into positive territory at $1.0822.

World FX rates YTDhttp://tmsnrt.rs/2egbfVh

Global asset performance http://tmsnrt.rs/2yaDPgn

Asian stock marketshttps://tmsnrt.rs/2zpUAr4

World stocks strong start to 2023https://tmsnrt.rs/3D0nPRL

(Reporting by Marc Jones; editing by John Stonestreet and Alex Richardson)

((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters Messaging: marc.jones.thomsonreuters.com@reuters.net Twitter @marcjonesrtrs))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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