US stock futures also pointed to a lower opening, indicating that Wall Street is heading towards a negative week. Federal Reserve Chair Jerome Powell's statement on Wednesday, indicating the likelihood of further interest rate increases this year to bring US inflation down to the central bank's target of 2%, contributed to the market concerns. Additionally, the Bank of England's unexpected decision to raise borrowing costs by half a percentage point, following stubborn inflation data, added to the unease. Meanwhile, Japanese inflation, excluding fresh food and energy costs, reached a 42-year high of 4.3%, fueling speculation about a potential shift in the Bank of Japan's loose monetary policy towards tightening.
The tightening of global monetary policy has dampened market sentiment across regions, according to Ken Cheung, chief foreign exchange strategist for Asia at Mizuho Bank. In Europe, the Stoxx Europe 600 index remained flat after a slight dip earlier in the day. The CAC 40 in France was down 0.3%, and Germany's DAX declined by 0.7%. London's FTSE 100 index slipped 0.2%, resulting in its worst week since the US banking turmoil in March. Axel Rudolph, a senior market analyst at online trading provider IG, warned that the Bank of England's battle against inflation could come at a high cost to the UK economy, potentially leading to a recession later this year or next.
Depressing statistics
Despite indications of a potential economic slowdown in the second quarter after an earlier recovery, members of the European Central Bank's governing council have maintained a hawkish stance this week. Their messages aimed to reassure markets that policymakers are inclined to take strong action to prevent inflation from running too high and for too long. Oxford Economic noted that the focus of these messages was on ensuring market confidence by erring on the side of doing more rather than risking inflationary pressures.
The eurozone, comprising 20 countries that use the euro, experienced a recession at the beginning of the year. A closely monitored survey released on Friday revealed minimal growth in eurozone output for the current month.
The Stoxx Europe 600 banks index, which tracks major EU and UK financial institutions, performed worse than the broader European stock market, dropping by 1%. If the economic slump persists, it would particularly impact lenders, as it would increase the likelihood of loan defaults due to individuals and businesses facing financial constraints and struggling to meet their payment obligations.
Concerns about global economic slowdowns have also exerted downward pressure on oil prices. The international benchmark Brent futures decreased by approximately 1%, while US WTI crude declined by 1.3%. Both benchmarks have experienced nearly a 4% loss over the course of the week.