Soaring prices and the battle by central banks to rein them in have sent a chill through global trading floors this year

London (AFP) - The euro and pound retreated against the dollar Thursday as economic data pointed to increased prospects of recession in Europe.

Global stock markets wobbled after another battering this week, while oil prices were flat.

Economic growth in the eurozone plummeted in June, a key survey showed, as high prices took the wind out the strong recovery from the deep lows of the coronavirus pandemic.

The closely-watched monthly purchasing managers’ index by S&P Global slumped to 51.9 from 54.8 in May. A figure above 50 indicates growth.

PMI data also revealed that Britain’s private sector business activity is languishing at its lowest level for more than a year on decades-high inflation.

The surveys weighed on Europe’s major currencies, with foreign exchange markets seen as a clearer indicator of a country’s economic health compared with stock markets that feature many multinationals.

The yield on European government bonds also fell in another indication that investors are more worried about the prospect of a recession.

“The global economy continues to be afflicted by severe supply shocks, which are pushing up inflation and driving down growth,” noted Citi analyst Nathan Sheets.

“We see the aggregate probability of recession as now approaching 50 percent,” he added.

Commentators have warned for some time that the world economy could be heading for contracting growth owing to the sharp increase in global interest rates aimed at cooling inflation.

Federal Reserve boss Jerome Powell on Wednesday said recession in the short term was “certainly a possibility”.

He said “inflation has obviously surprised to the upside over the past year, and further surprises could be in store”.

The Fed this month hiked US interest rates by 75 basis points and is expected to do the same in July, with some observers predicting two more such moves after that.

Deutsche Bank CEO Christian Sewing also said there was a 50 percent chance of a contraction next year.

Elon Musk, JP Morgan boss Jamie Dimon and economist Nouriel Roubini are among several others to have made similar forecasts.

The prospect of a retreat in the global economy continued to drag on oil prices as traders fretted over slowing demand.

Brent and WTI, the international and US benchmarks, have slumped over the past week, even with sanctions on Russian crude exports and China’s gradual reopening from lockdowns.

Adding to the selling of crude was data Wednesday indicating a jump in US stockpiles.

“A slowdown in global growth is a risk to oil demand, which could help ease some of the tightness in the market,” said Warren Patterson of ING Group.

“Already, we have seen demand estimates revised lower.”

- Key figures at around 1330 GMT -

Euro/dollar: DOWN at $1.0524 from $1.0570 late Wednesday

Pound/dollar: DOWN at $1.2262 from $1.2263

Euro/pound: DOWN at 85.83 pence from 86.17 pence

Dollar/yen: DOWN at 134.79 yen from 136.22 yen

London - FTSE 100: DOWN 0.6 percent at 7,047.63 points

Frankfurt - DAX: DOWN 1.3 percent at 12,976.66

Paris - CAC 40: DOWN 0.4 percent at 5,893.83

EURO STOXX 50: DOWN 0.6 percent at 3,443.66

New York - Dow: UP 0.5 percent at 30,621.31

Tokyo - Nikkei 225: UP 0.1 percent at 26,171.25 (close)

Hong Kong - Hang Seng Index: UP 1.3 percent at 21,273.87 (close)

Shanghai - Composite: UP 1.6 percent at 3,320.15 (close)

Brent North Sea crude: UP less than 0.1 percent at $111.79 per barrel

West Texas Intermediate: FLAT at $106.18 per barrel

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