European stocks were in the red on Tuesday as the overlapping crises of the war in Ukraine, pandemic and inflation cloud the global economic outlook.
World Bank chief economist Carmen Reinhart warned that the global economy is passing through a period of "exceptional uncertainty". Citing an "array of disruptions" from lockdowns in China to soaring food prices amid the war, adding she wouldn’t rule out further cuts to the growth outlook.
On Monday, the Washington-based institution slashed its global growth forecast for 2022 by nearly a full percentage point, to 3.2% from 4.1%, due to the added economic stresses from the Ukraine crisis. It is preparing a $170bn (£131bn) financial aid package in response to the coinciding global crises of war, pandemic and inflation that are hitting the poorest nations the hardest, president David Malpass said.
Meanwhile, the International Monetary Fund (IMF) downgraded UK's economic growth forecast to 3.7% for 2022 from 4.7% predicted in January. It also slashed its global growth estimate from 6.1% in 2021 to 3.6% in 2022 and 2023.
Analysts have warned of "growing concerns" of global recessions as growth outlooks are cut.
"Rising interest rates at a time when economic activity is slowing down makes for very difficult conditions, which aren’t lost on the financial world," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown. "The US reaction has so far been muted, although this of course follows two weeks in the red for European and US stock markets."
"Asian markets have also suffered, with Hong Kong equities facing the brunt of supply chain disruption, following China’s zero-COVID approach."
Sterling (GBPUSD=X) has dropped below $1.30 in its fourth straight day of losses against the dollar amid interest rate jitters and ahead of a speech by Bank of England governor Andrew Bailey on Thursday.
Crude prices pushed to their highest levels this month before retreating as shutdowns in Libyan facilities added to concerns over tight global supply.
It comes as France's finance minister Bruno Le Maire said Europe needs to target Russia's energy sector, adding that more sanctions were in the works. Britain and the United States have already banned Russian crude imports, but the move has proved more divisive on the bloc due to its heavy reliance on Moscow.
"We’re also seeing renewed upward pressure in agricultural commodity prices, with corn rising to its highest level since August 2012, while wheat is edging higher again, along with rough rice and soybean," said Michael Hewson, chief market analyst at CMC Markets.
Across the Atlantic, US benchmarks pushed higher on Tuesday ahead of cross-section corporate earnings reports as bond yields climbed and fears over the hottest inflation since 1981 linger.
The 10-year Treasury yield continued to climb, hitting 2.91%, a new three-year high, on a combination of Federal Reserve hiking jitters, as well as concerns about rising food prices. Yields climb when bonds fall.
"A long weekend away from markets seems to have done wonders for US investors, who have been in a much better mood over these last 24 hours," said Chris Beauchamp, chief market analyst at online trading platform at IG. "Hope springs eternal, especially in earnings season, and with a broader range of names reporting from now on there will be the expectation of better news than that from the cautious updates of the banking sector over the last few sessions."
Overseas markets were mixed overnight after the latest Chinese economic data showed retail sales fell 3.5% in March, slightly more than expected and down from a 6.7% rise in February amid COVID lockdowns. Despite this, China's gross domestic product beat economists' expectations, expanding 4.8% in the first quarter of this year.
Watch: How does inflation affect interest rates?