Stock markets were broadly steady and the dollar traded mixed as investors digested the latest developments, including the surprise move by China's central bank Monday to slash interest rates as a raft of data showed industrial production and retail sales growth for July came in lower than expected.
"The risk of stagflation in the world economy is rising, and the foundation for domestic economic recovery is not yet solid," China's National Bureau of Statistics warned.
Stagflation refers to long-running high inflation combined with rising unemployment and weak growth.
Beijing's rigid adherence to a zero-Covid strategy has held back economic recovery as snap lockdowns and long quarantines batter business activity and a recovery in consumption.
Wall Street stocks initially fell following the Chinese data and a gloomy reading from the New York Federal Reserve Bank on regional manufacturing activity. But stocks had turned around by midday.
"The risk of a global recession is pretty high at the moment," said FHN Financial's Chris Low, adding that a silver lining of the weakening outlook is the expectation that the Federal Reserve could pivot more quickly and slow its efforts to raise interest rates to quell red-hot prices.
"The Fed will stop sooner if inflation goes away and it's more likely to go away sooner with the global economy slowing," Low said.
But the weakened Chinese economy weighed on oil prices, as did speculation that a revived nuclear deal could add Iranian crude to global markets.
US oil futures dropped nearly three percent to finish below $90 a barrel.
Iran's foreign minister said Tehran would deliver its "final" proposal later Monday on talks to revive its 2015 nuclear accord with world powers, after Washington had accepted key demands.
A deal would mean that Iran's crude output of 2.5 million barrels per day would no longer be subject to international sanctions, which would help relieve supply constraints that have been pushing up prices.
"Iran would flood the market," said analyst Aditya Saraswat at energy research firm Rystad, who added the country could ramp up production by another million barrels per day.
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