European markets were lacklustre on Thursday, while Wall Street pushed higher, as the US economy fell into a technical recession after economic activity dropped for the second consecutive quarter.
It came as US gross domestic product (GDP) shrank by just over 0.2% in the quarter to June, or by 0.9% on an "annualised" basis, stoking fears that the global economy is heading into recession amid soaring energy and inflation.
Two quarters of negative growth are seen as the technical definition of a recession by economists
Business inventories fell, and firms also cut back on investment during the period. Spending on real estate also declined, along with federal government spending, state and local government spending. However, exports of both goods and services increased, as did personal consumption.
"This is arguably the most important indicator of underlying growth, so this can be taken as a positive from a disappointing set of data. In addition, labour markets remain robust providing further support to the economy," Rob Clarry, investment strategist at wealth manager Evelyn Partners, said.
It came after the US Federal Reserve raised rates 75 basis points as widely expected, but did note some softening in recent data. It was the second 0.75 percentage-point rise in a row.
“The Powell press conference appeared to raise more questions than answers, which may well have been the intention, but also muddied the waters about the Fed’s ambition when it comes to combating inflation,” Michael Hewson of CMC Markets said.
“While keeping the market guessing on where monetary policy is set to go next gives the central bank wriggle room if they feel the need to slow the pace of rate rises in the coming months, the ambiguity could also make its inflation fighting job harder.
“By acknowledging that spending and production in the economy had softened in recent weeks, and that consumer spending had gone the same way, Powell may have been laying the groundwork for a possible slowdown in the pace of rate rises, without actually saying so outright.”
Fed chair Jerome Powell’s comments lead to a surge in the Nasdaq on Wednesday, which closed up by more than 4%.
Meanwhile, separate data revealed that applications for US unemployment insurance fell for the first time in four weeks, although they are still holding near November's record highs.
Initial unemployment claims decreased by 5,000 to 256,000 in the week to 23 July, according to the Labour Department.
Continuing claims for state benefits fell to 1.36 million in the week to 16 July.
Asian shares were mixed overnight as investors worried about a possible slowdown in the pace of US interest rate hikes, comforting bond markets and sending the dollar to a three-week low on the yen.