Global stock markets have slipped for the second straight day and bond yields have inched lower on growing fears that policymakers bent on dampening inflation will tip their economies into recession.
A succession of weak data releases in Europe and the United States has not prevented central bankers from doubling down on hawkish rhetoric.
More is likely later on Wednesday when the heads of the European Central Bank, US Federal Reserve and Bank of England speak at a central banking forum.
Data on Tuesday showed US consumer confidence dropped to a 16-month low in June, yet several Fed policymakers pledged further rapid interest-rate hikes, citing the need to tame "unbridled" inflation .
Those US figures, following a raft of dismal consumer confidence data across Europe, triggered steep Wall Street falls, sending the S&P 500 and the Nasdaq indexes down 2 per cent and 3 per cent respectively .
That weaker momentum carried into Wednesday, sending an Asian ex-Japan index 1.4 per cent lower, while a pan- European equity index eased 0.3 per cent, snapping a three-day rally.
US and German 10-year bond yields slipped 5-6 basis points, the former down more than 30 bps from mid-June highs .
The consumer sentiment deterioration clearly points to recession, Citi told clients.
After 7.5 per cent-7.9 per cent annual inflation prints across German provinces, an 8 per cent June reading is expected for the country later in the day, versus 7.9 per cent in May.
Paul O'Connor, head of Janus Henderson's multi-asset team in London, predicted "stormy" markets as long as the growth- inflation question marks persisted.
"The problem is that the level of inflation is so problematic in so many parts of the world and we are a long way from central banks being able to declare the job is done," O'Connor said.
"We will undoubtedly get growth downgrades over the summer but we will also get rising perception of recession risk and I don't think markets are fully priced for it."
Sentiment had lifted early on Tuesday on news China was easing quarantine requirements for inbound passengers in a major relaxation of its "zero COVID" strategy
While parts of the Chinese stock market, including property, extended gains on Wednesday, the positive impact of the news largely petered out - Chinese blue-chips, which hit four-month highs on Tuesday, slumped 1.5 per cent and Hong Kong lost 2 per cent
"Inevitably, markets tend to overreact to these sorts of news," said Carlos Casanova, senior economist at UBP in Hong Kong. "In order for that to be sustainable, we really want to see these measures materialise into actual reopening."
Wall Street futures flatlined .
Inflation fears have been fanned further by three straight days of oil price gains that have taken Brent crude futures above $117 a barrel.
"The market is stuck in the push-pull between the current deteriorating macro backdrop and the looming threat of a recession, pitted against the strongest fundamental oil market set-up in decades, maybe ever," RBC Capital's Mike Tran told clients.
The OPEC+ crude exporters group started a two-day meeting on Wednesday but a big policy change looks unlikely, with United Arab Emirates Energy Minister Suhail al-Mazrouei already indicating his country is pumping close to capacity.
Market jitters are driving a renewed bid for the dollar, lifting it to a one-week high against a basket of currencies.
The euro dropped 0.6 per cent on the greenback overnight, but was flat by 0830 GMT at $1.0514 while the yen at 136.13 per dollar was not far off last week's 24-year low of 136.7.
Australian Associated Press
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