Stocks waver, oil prices fall on recession fears

NEW YORK — Stock markets wobbled and oil prices sank on Friday amid growing fears that inflation-fighting interest rate hikes by central banks could trigger recession.

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

The third Fed increase 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 Jones Industrial Average ended back under 30,000 points while the broad-based S&P 500 eked out a positive close and the tech-heavy Nasdaq rose 1.4 per cent.

But the S&P lost 5.8 per cent for the week, its worst performance since 2020.

European markets seesawed, with London finishing in the red, Paris almost flat and Frankfurt closing higher.

"Sentiment has been shattered and equities could suffer further," said Craig Erlam, an analyst at online trading platform OANDA.

Karl Haeling of LBBW agreed, saying "markets are oversold, but probably not oversold enough to call for a bottom".

He said the modest gains Friday likely mark "a little technical pause".

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.

"We see that the positive attempts get rapidly killed as the market prices in a higher recession risk as inflation doesn't ease," said Ipek Ozkardeskaya, an analyst at Swissquote bank.

Asian stock markets mostly closed lower on Friday.

Recession fears also gripped the oil market as WTI, the US benchmark, fell by 6.4 per cent to $110.04 per barrel. The international benchmark, Brent North Sea Crude, dropped 5.4 per cent to $113.29.

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

BoJ bucks the trend 

Investors worry that while the rate increases can help tame inflation, they also crimp demand and economic growth.

The Bank of Japan (BoJ) 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.

US markets will be closed on Monday for the Juneteenth holiday.