LONDON: Stock markets on both sides of the Atlantic came under heavy pressure from high US bond yields amid inflation fears Wednesday, while signs of a coming economic slowdown hit stocks in luxury goods and technology firms hard.
"US stocks are extending a recent drop, along with Europe, with the persistent rise in Treasury yields continuing to unnerve the global markets, joining festering trade concerns and European political dysfunction," analysts at Charles Schwab said.
Investors looking for reasons to dump shares had a good many to choose from, and the selling wave pulled some key markets down by two percent or more.
"There are a number of worries for investors right now, from the pace of rising bond yields and the impact on investor sentiment, to Italy's populist coalition playing a game of chicken with the European Commission, stalling Brexit negotiations and the ongoing trade conflict between the US and China," said Craig Erlam, senior market analyst at Oanda trading group.
A strong euro against the dollar added pressure on eurozone stock markets.
The oil price dropped sharply as economic growth expectations were downgraded.
- 'Smattering of fear' -
Neil Wilson, an analyst with Markets.com, said he detected a "smattering of fear" across markets, with the main drag on equities coming from tech stocks which, he said, had "been the real drivers of the stock market performance in recent years".
Shares in European luxury companies also lost much of their shine as investors feared that any slowdown in global economic growth will translate into dwindling sales for high-end firms.
The IMF on Tuesday delivered a reality check on world growth, cutting its forecast for global expansion because of trade risks and rising international debt levels.
In Paris, shares in Kering fell nearly 10 percent, LVMH over seven percent and Hermes around five percent.
In Milan, Moncler lost more than 10 percent, Ferragamo nearly eight, and Luxottica over three percent.
In Zurich, Richemont and stocks in several leading watch manufacturers also suffered sharp falls.
Investors fear that luxury sector players "won't be able to sustain the pace of growth seen in previous quarters if the economic slowdown in emerging countries gets much worse, particularly in China," Yann Azuelos, a portfolio manager at Mirabaud France, told AFP.
Analysts cited Morgan Stanley's move to cut its recommendation on European luxury as an additional factor weighing on the sector.
On Wall Street, the Dow and S&P 500 were both about 1.5 percent down in the late New York morning, but the tech-heavy Nasdaq index lost over two percent.
"There's nervousness concerning technology stocks," said Alexandre Baradez, an analyst at IG France. "There are fears concerning forecasts for the third and fourth quarters," he told AFP.
- Italian worries -
Earlier, Asian stock markets ended cautiously higher, after a volatile session for US equities and as yields on Treasury bonds retreated from a seven-year peak.
Investors have been nervous since the yield on 10-year US Treasury bonds surged above 3.0 percent. On Wednesday it went higher again, to reach 3.22 percent.
The advance followed a stream of strong US economic data that was seen as boosting the likelihood that the Federal Reserve will persist in raising interest rates.
In Europe this week, the closely-watched spread between the rates on 10-year bonds in Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, hit the highest level since April 2013.
Markets have been shaken by a row between Brussels and Rome, who are at loggerheads after Italy's populist government passed a purse-busting budget last week to the annoyance of the EU.
- Key figures around 1545 GMT -
London - FTSE 100: DOWN 1.3 percent at 7,145.74 points (close)
Paris - CAC 40: DOWN 2.1 percent at 5,206.22 (close)
Frankfurt - DAX 30: DOWN 2.2 percent at 11,712.50 (close)
EURO STOXX 50: DOWN 1.7 percent at 3,266.90
New York - Dow Jones: DOWN 1.5 percent at 26,040.01
Hong Kong - Hang Seng: UP 0.1 percent at 26,193.07 (close)
Shanghai - Composite: UP 0.2 percent at 2,725.84 (close)
Tokyo - Nikkei 225: UP 0.2 percent at 23,506.04 (close)
Euro/dollar: UP at $1.1532 from $1.1494 at 2100 GMT on Tuesday
Pound/dollar: UP at $1.3204 from $1.3144
Dollar/yen: DOWN at 112.66 from 112.95 yen
Oil - Brent Crude: DOWN $1.51 at $83.49 per barrel
Oil - West Texas Intermediate: DOWN $1.72 at $73.24