European stock markets slumped on Wednesday amid inflation fears as US crude oil hit a seven-year high.
In London, the FTSE 100 (^FTSE) fell more than 1.2% during the session, dipping below the key 7,000 points mark, while the French CAC (^FCHI) also tumbled 1.1% and the DAX (^GDAXI) was 1.4% lower in Germany.
It came as US crude reached its highest level since 2014, extending its recent rally due to tight supplies, rising demand, and soaring gas prices. European natural gas also climbed to fresh highs yet again on Wednesday, piling more pressure on energy users and providers.
A barrel of US crude touched $79.40, while Brent crude (BZ=F) hit a three-year high of $83 per barrel earlier in the session.
"I think rallying crude oil are driving stagflation concerns for a large part — especially for emerging market economies who are also net oil importers. India and China to name a couple," Fawad Razaqzada, market analyst at Think Markets, said.
"Even in the more advanced economies, rising crude oil prices have raised fuel prices, directly impacting consumers’ disposable incomes.
"The other factors are driven by other energy prices — most notably gas, but also surging electricity prices — as well as supply-chain bottlenecks, the latter raising both inflation and hurting economic growth."
Meanwhile, German industrial orders tumbled 7.7% in August, as supply bottlenecks and shortages hit factories.
Europe’s largest economy suffered during the month after two months of strong gains. The figures came in much worse than the 2.1% fall which analysts expected.
Car and car part manufacturers were the worst hit, with orders down 12% on the previous month.
Watch: European gas prices hit all-time high
Across the pond, the S&P 500 (^GSPC) dipped 0.8% at the time of the European close, and the tech-heavy Nasdaq (^IXIC) fell 0.5%. The Dow Jones (^DJI) edged 1% lower, recovering from a deeper fall after the bell.
It came as private payrolls increased by 568,000 jobs in the US in September, ahead of forecasts. Economists polled by Reuters had forecast an increase of 428,000.
Data for August was revised lower to show 340,000 jobs added instead of the initially reported 374,000, the latest official figures showed.
It was led by leisure and hospitality firms, who took on 226,000 more staff. Manufacturers took on another 49,000 staff, with construction payrolls up 46,000.
Meanwhile, the benchmark US 10-year yield rose to its highest level since June on expectations that the US Federal Reserve will step in to tighten monetary policy.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "The spike in energy prices continue fuelling expectations of higher inflation for longer. Therefore, central banks will be forced to cool down the overheating in inflation rather than trying to boost recovery."
The next big announcement traders will be keeping their eye on is the US jobs report on Friday. A weak number could fuel concerns that we are heading for the dreaded stagflation scenario.
Asian stocks moved mostly lower overnight on the back of higher energy prices and inflation concerns.
In Tokyo, the Nikkei (^N225) fell more than 1%, extending losses for an eighth consecutive session, while the Hang Seng (^HSI) dipped 0.4%. The Shanghai Composite (000001.SS) is closed until Friday due to a holiday.
Traders remain concerned that new Japanese prime minister Fumio Kishida could be outlining a redistribution plan that includes higher taxes, including on capital gains.
Elsewhere, the Bank of New Zealand hiked interest rates for the first time in seven years in a bid to contain rising inflation. The Reserve Bank of New Zealand (RBNZ) increased its cash rate by a quarter of a percentage point to 0.5%.
"The committee noted that further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment," the RBNZ said.