European markets closed in the red on Thursday as investors digest rampant inflation and a slowing global economy, exacerbated by Russia's war in Ukraine.
The International Monetary Fund (IMF) warned that the outlook for the global economy has "darkened significantly" in recent months.
IMF head Kristalina Georgieva said the energy price shock from the Ukraine conflict exacerbated the cost of living crisis for hundreds of millions of people, and that the risk of recession was rising.
"The outlook remains extremely uncertain. Think of how further disruption in the natural gas supply to Europe could plunge many economies into recession and trigger a global energy crisis," Georgieva said. "This is just one of the factors that could worsen an already difficult situation."
"It is going to be a tough 2022 and possibly an even tougher 2023, with increased risk of recession."
Meanwhile, Brussels is poised ramp up its inflation forecast and slash predictions for economic growth as it grapples with the fallout from Russia's war in Ukraine.
Growth in the bloc was revised down to 2.6% this year, slightly less than the 2.7% predicted in May.
The picture for next year is gloomier, with growth expected to slow to just 1.4%, instead of the 2.3% previously estimated, as higher energy prices take their toll.
Inflation is anticipated to hit 7.6% this year in the euro area, and peak at a new record of 8.4% in the third quarter of this year, compared with 6.1% previously forecast. Inflation in the wider EU is expected to hit 8.3% this year.
In 2023, prices are expected to ease to 4%. That is still far above the European Central Bank’s 2% target and significantly higher than previously predicted.
Across the pond, Wall Street slumped after US inflation reached a fresh 40-year high in June, bolstering expectations that the Fed will continue on a hawkish path to tighten monetary policy.
Consumer prices saw the biggest rise since 1981, jumping to 9.1% last month, up from 8.6% in May, and well ahead of economists' 8.8% forecast. Core CPI, which outstrips volatile food and energy prices, came in 5.9% higher, down slightly from last month but still ahead of predictions.
The possibility of the Federal Open Market Committee voting for more aggressive rate rises have surged. Markets were betting on a 75 basis point lift, but hotter-than expected figures could force the central bank to go further.
After the June data, Atlanta Fed president Raphael Bostic expressed concern at the strength of the inflation number, saying "everything is in play" for July.
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"Yet again it is the dollar which clears out all other markets, with FX and commodity prices on the back foot thanks to a rampant greenback," Joshua Mahony, senior market analyst at online trading platform IG said.
"However, it is the commodity markets which have really been dealt a blow today, as dramatic declines across the board saw FTSE miners hit hard."
It was a mixed picture for Asian stocks overnight, with the Nikkei (^N225) leading the way, up 0.7%. In Hong Kong, the Hang Seng (^HSI) dropped 0.2% and the Shanghai Composite (000001.SS) slipped 0.1%.
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