Stock markets on both sides of the Atlantic saw hefty losses Wednesday, gripped by fears for the global economy only a day after enthusiasm over possible detente in an ongoing US-China trade war had given them a dizzying lift.
A German GDP contraction in the second quarter, weak Chinese industrial output and an inversion of the US yield curve all seemed to cement fears of a global slowdown.
"The joyous reaction in the markets to the news that the US would delay increasing tariffs on some Chinese consumer products appears to have been short-lived," said David Cheetham at XTB.
Eurozone indices were more than two percent down by the close, while on Wall Street the Dow Jones index was down by nearly 600 points approaching midday in New York.
The yield on the 10-year US Treasury bond, meanwhile, briefly slid below the yield on two-year debt Wednesday, a rare phenomenon that has often been a harbinger of recession.
- 'Dashboard of doom' -
"On the economics dashboard of doom, we have another flashing warning light," said analysts at ING economics.
"The market is worried about a recession. For now we don't see it, but there is a chance the fear becomes self-fulfilling," they said.
Bond yields have gyrated in recent weeks, with analysts warning that sinking rates are a sign of a worsening medium-term and near-term economic outlook.
XTB's Cheetham noted, however, that stocks were not usually in immediate trouble from bond yield inversions.
Whenever yields inverted in the past 60 years, it took US stocks at least three months, or even up to 22 months, before they peaked, he said.
"Sinking yields are the bond market's way of pressuring the Fed to step on the monetary gas pedal and cut interest rates," Joe Manimbo, senior market analyst at Western Union Business Solutions, said in a note.
European and US stocks had risen across the board on Tuesday on news that the United States had delayed tariffs on a swathe of Chinese goods easing tensions in their bitter trade war, an upward trend that was mirrored by Asian stocks Wednesday.
Shanghai managed gains despite data showing Chinese factory output expanded last month at its slowest pace in 17 years.
- Keep that scepticism -
But in European trading, Frankfurt slumped to its lowest level since March after data showed Germany's economy contracted in the second quarter, highlighting its vulnerability to trade tensions and stoking debate on higher government spending.
Germany actually lagged Italy's standstill economy -- and France which posted 0.2 percent growth.
Milan's stocks index meanwhile tumbled by nearly three percent, a reflection of Italy navigating a political crisis.
"The lift (for stock markets) gained from Tuesday's trade war twist... failed to carry over to Wednesday -- the mood undermined by weak data from both China and Germany," said Connor Campbell, analyst at Spreadex trading group.
Sterling rose after official data showed UK annual inflation rose unexpectedly to 2.1 percent in July from 2.0 percent the previous month.
Oil prices retreated, having surged on the tariffs news Tuesday when US President Donald Trump also said top-level negotiators for Washington and Beijing had held "very productive" talks by phone.
"Markets... rallied hard on the notion of Trump blinking, but overall a high degree of scepticism should remain and an imminent deal is unlikely given Trump has foreshadowed he is going to be campaigning hard on the issue in the 2020 election," cautioned National Australia Bank analyst Tapas Strickland.
- Key figures around 1540 GMT -
London - FTSE 100: DOWN 1.4 percent at 7,147.88 points (close)
Frankfurt - DAX 30: DOWN 2.2 percent at 11,492.66 (close)
Paris - CAC 40: DOWN 2.1 percent at 5,251.30 (close)
EURO STOXX 50: DOWN 2.0 percent at 3,288.70
New York - Dow: DOWN 2.2 percent at 25,699.66
Tokyo - Nikkei 225: UP 1.0 percent at 20,655.13 (close)
Hong Kong - Hang Seng: UP 0.1 percent at 25,302.28 (close)
Shanghai - Composite: UP 0.4 percent at 2,808.91 (close)
Euro/dollar: DOWN at $1.1145 from $1.1172 at 2115 GMT
Pound/dollar: UP at $1.2068 from $1.2060
Euro/pound: DOWN at 92.36 pence from 92.60 pence
Dollar/yen: DOWN at 105.75 from 106.74 yen
Brent North Sea crude: DOWN $2.26 at $59.04 per barrel
West Texas Intermediate: DOWN $2.39 at $54.71