Stocks sunk around the world on Wednesday as fresh inflation data in Europe revived fears about runaway price rises forcing central banks to raise rates. Selling wasn't helped by a deep sell-off in the cryptocurrency market, which fuelled a global move to less risky investments.
Markets across Europe opened sharply lower and US futures sunk after data showed price rises running dangerously close to the 2% target used by central banks. Investors fear inflation will soon overshoot that level and force central banks to raise interest rates.
Fresh data published by the UK's Office for National Statistics on Wednesday showed UK inflation more than doubled last month to 1.5%. The figure was slightly more than economists were expecting.
Data published mid-morning in Europe showed EU inflation running at 1.6%.
The rapid rise fuelled concerns that inflation could soon spiral out of control and force central banks to raise interest rates sooner than planned. That would likely mean a premature end to the nascent economic recovery around the world.
"At current levels, inflation is nothing to fret about, but there is rising concern that the fiscal and monetary response to the pandemic has sown the seeds of an inflationary scare further down the road," said Laith Khalaf, a financial analyst at AJ Bell.
"For the moment, the Bank of England is dismissing consumer price increases as a natural bounce back from the depths of the pandemic last spring. But the economic recovery could be a Trojan horse, smuggling inflation into the UK, right under the nose of central bankers."
"Inflation rising is a sign that the economy is building steam and there’s a question over how far above target the Bank of England will allow price rises to go," said Ed Monk, associate director for Personal Investing at Fidelity International, in the wake of this morning's UK data.
"That, combined with already inflated valuations in parts of the stock market, means investors in shares should expect some volatility in the months ahead."
Losses had been sharper earlier in the afternoon after a weak open on Wall Street. The S&P 500 (^GSPC) was down 1% by the time markets shut in Europe, while the Dow Jones (^DJI) was off 1.2% and the Nasdaq (^IXIC) was 0.95% lower.
Inflation fears have been growing in markets around the world as investors fret that central banks are underestimating the inflationary pressures in the economy. Last week, US inflation data showed price rises were already more than double the US Federal Reserve's target.
Watch: What is inflation and why is it important?
Elsewhere, cryptocurrencies continued to slump. Bitcoin (BTC-USD) fell below $35,000 after China's central bank renewed its crackdown on the market. The broader crypto market has lost 20% of its value in the last 24 hours.
"A risk-off mood is evident throughout global markets, with the equities and commodities losing ground," said Joshua Mahoney, a senior market analyst at IG. "However, it is crypto which has been the most dramatic, with many wondering whether todays collapse could have wider implications.
"With institutions having taken a more keen role over this latest bull-run, the repercussions of another extended crypto-capitulation could be more widespread compared with 2018."
Notable stocks in Europe included John Laing, the infrastructure group, which surged 11% in London after private equity group KKR announced a £2bn bid for the business.
US markets had closed in the red on Tuesday and Asian markets were mixed overnight. Japan's Nikkei (^N225) fell 1.2% and China's Shanghai Composite (000001.SS) lost half a percent, but the Hong Kong Hang Seng (^HSI) rallied 1.4%, the Shenzhen Component (399001.SZ) gained 0.2%, and the South Korean KOSPI (^KS11) rose 1.2%.
The US Federal Reserve will publish the minutes from its last policy meeting at 6pm UK time. Micheal Hewson, chief market analyst at CMC Markets, said the meeting last month "seems quite a long time ago now," and said the minutes "probably won’t tell us anything that we don’t already know, given how chatty various FOMC members have already been over the past few days."
Watch: Why can't governments just print more money?