European stocks fell and the dollar continued to strengthen as new restrictions to contain coronavirus in China deepened investors’ fears over the health of the global economy.

The Stoxx Europe 600 index dropped 0.6 per cent in early trading, following sharp stock market falls in China driven by new Covid-19 restrictions. Germany’s Dax fell 0.8 per cent.

The dollar hit a fresh 24-year high against the yen, buying ¥137.3. The US currency also moved closer to parity with the euro, which fell 0.6 per cent to $1.012.

Investors’ fears over the outlook for the global economy were fanned by news of new Chinese lockdowns, which may curb demand and disrupt global supply chains.

“Day by day and week by week, we’re swapping from worrying about interest rates to worrying about recession,” said Neil Birrell, chief investment officer at Premier Milton Investors. “We have pivoted more towards recession fears today.”

On Friday, markets were gripped by expectations that the US Federal Reserve would respond to unexpectedly strong monthly jobs data by continuing on its path of aggressive interest rate hikes. Markets are expecting the Fed to raise rates by as much as 0.75 percentage points at its July meeting to tame inflation. Its last move, a 0.75 percentage point increase in June, was its biggest rate rise since 1994. Futures markets tip the US funds rate to peak at 3.54 per cent next March.

US employers added 372,000 workers in June, beating average forecasts of 265,000. Economists also expect inflation data for last month, released on Wednesday, to show the annual pace of consumer price increases has hit 8.7 per cent.

But while both data points could firm the Fed’s resolve to continue raising rates, Goldman Sachs strategist Jan Hatzius said in a note to clients that there was “no doubt that a labour market slowdown is under way”, as “many publicly traded companies have announced hiring freezes or slowdowns”.

Goldman had put a 30 per cent probability of a US recession starting in the next 12 months and a 50 per cent chance of an economic contraction in the next two years, Hatzius added.

In Europe, analysts see Russia’s invasion of Ukraine as driving recession risks. As Russia shut its Nord Stream 1 gas pipeline for 10 days of scheduled maintenance on Monday, ING strategists noted that “many fear Russia may take the chance to halt or considerably trim its exports”, in “a severe blow to the region’s economic outlook”.

The yield on the 10-year German Bund, which falls as the price of the benchmark eurozone debt instrument rises, fell 0.05 percentage points to 1.29 per cent.

The yield on the 10-year US Treasury bond, which underpins debt pricing worldwide, traded 0.04 percentage points lower at 3.06 per cent.

Futures markets indicated Wall Street’s S&P 500 share index, which rose last week following its worst first half of the year for more than five decades, would fall 0.6 per cent in initial New York trades.

In Asia, Hong Kong’s Hang Seng share index shed 2.8 per cent and mainland China’s CSI 300 dropped 1.7 per cent after cities across China reimposed coronavirus restrictions to battle the spread of the highly contagious BA. 5 Omicron coronavirus subvariant.

Tokyo’s Topix rose 1.4 per cent on Monday after Bank of Japan governor Haruhiko Kuroda warned of “very high uncertainty” for the domestic economy in a strong signal that the central bank will keep defying the global trend towards higher interest rates.

Brent crude oil fell 2 per cent to $104.89 per barrel.

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