Recession Fears Send Oil Prices Plunging

Electronic quotation boards display the yen's rate against the US dollar at a foreign exchange brokerage in Tokyo on 22 June, 2022. (AFP Photo)

Wall Street stocks climbed Wednesday as the United States (US) Federal Reserve (Fed) chief stressed the need to combat decades-high inflation, but elsewhere equities and oil prices tumbled on mounting recession fears as central banks hike interest rates.

Wall Street was moderately higher in late morning trading, while European and Asian markets closed in the red, a day after healthy gains.

Federal Reserve boss Jerome Powell began two days of testimony to US lawmakers on Wednesday, warning that the US economy faced an "uncertain" global environment and could face further inflation "surprises".

His testimony to Congress this week will be pored over for an idea about officials' plans for fighting runaway prices, which are being fanned by supply chain snarls, China's COVID lockdowns and the war in Ukraine.

Powell once again stressed that the Fed was committed to bringing down inflation – which has reached a 40-year high – with higher interest rates.

But the world's largest economy "is very strong and well positioned to handle tighter monetary policy", he said.

Most observers expect the Fed to aggressively hike US interest rates several more times this year, having recently carried out the sharpest lift in almost 30 years.

Powell said rapid interest rate increases were meant to cool demand and bring inflation down, but he acknowledged the risk that the hikes could trigger a US recession.

"It's not our intended outcome at all, but it's certainly a possibility," Powell said in testimony to the Senate Banking Committee.

"The 'R' word is likely to come up a lot today and the Chairman will have a tough time dodging it, especially with mid-terms in five months," said OANDA market analyst Craig Erlam, referring to recession.

"Naturally, he'll do his best to remain apolitical but I'm not sure investors will be able to ignore so much recession chat," he added.

Expectations of more rate hikes have been handing support to the dollar, which pushed the yen briefly to a fresh 24-year low Wednesday, before sliding against major rivals.

The Bank of Japan is holding back from lifting interest rates, in sharp contrast to other major central banks.

Oil prices were feeling the heat from recessionary fears, with both main contracts tanking more than six percent at one point.

"Concerns about a global slowdown appear to be outweighing any concern over supply issues derived from Russia’s invasion of Ukraine, and the prospect that Chinese demand could return," said market analyst Michael Hewson at CMC Markets.

Crude and gas prices have soared in recent months after major economies lifted pandemic lockdowns and following the invasion of Ukraine by major energy producer Russia.

Surging energy costs are fuelling global inflation, with official data Wednesday showing the British annual rate hitting a fresh 40-year high above nine percent.

In the US, President Joe Biden asked Congress on Wednesday to suspend the federal gas tax for three months as skyrocketing prices cause widespread anger among Americans just months before crucial mid-term elections.

A senior administration official noted that US gas prices – averaging near US$5 per gallon – had jumped almost US$2 since Russian President Vladimir Putin began building up forces on the Ukrainian border earlier this year.

Key Figures At Around 1530 GMT 

Brent North Sea crude: DOWN 3.7 percent at US$110.39 per barrel

West Texas Intermediate: DOWN 110.39 percent at US$104.86 per barrel

New York - Dow: UP 0.3 percent at 30,623.29 points

EURO STOXX 50: DOWN 0.8 percent at 3,467.26

London - FTSE 100: DOWN 0.9 percent at 7,089.22 (close)

Frankfurt - DAX: DOWN 1.1 percent at 13,144.28 (close)

Paris - CAC 40: DOWN 0.8 percent at 5,916.63 (close)

Tokyo - Nikkei 225: DOWN 0.4 at 26,149.55 (close)

Hong Kong - Hang Seng Index: DOWN 2.6 percent at 21,008.34 (close)

Shanghai - Composite: DOWN 1.2 percent at 3,267.20 (close)

Euro/dollar: UP at US$1.0594 from US$1.0535 late Tuesday

Pound/dollar: UP at US$1.2304 from US$1.2273

Euro/pound: UP at 86.10 pence from 85.80 pence

Dollar/yen: DOWN at 135.89 yen from 136.64 yen