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European stocks experienced a decline over the lunchtime trading as investors grew cautious about the future of the US economy and the corporate earnings reports from major American companies.
The Stoxx Europe 600, representative of the European region, dropped by 0.5%, extending its morning losses, primarily due to the decline in utility and real estate stocks. Meanwhile, France’s Cac 40 fell by 0.6%, and Germany’s Dax declined by 0.8%.
Similar declines were observed in Asia, where the Chinese benchmark CSI 300 lost 0.8%, while Hong Kong’s Hang Seng index remained flat.
These shifts in the market followed a four-day losing streak on Wall Street. Last week’s data suggested a slowdown in the world’s largest economy, furthering the bearish sentiment caused by weaker-than-expected corporate earnings. Apple shares fell by 5% on Friday after disappointing sales figures for iPhones and other hardware.
“Markets in Europe and Asia began the week with losses, reflecting the sentiment from the US where markets experienced a sell-off last week due to the Fitch downgrade and weaker-than-expected job numbers on Friday,” explained Shanti Kelemen, chief investment officer at M&G Wealth.
Although the closely monitored non-farm payrolls report revealed that the US economy added 187,000 jobs in July, fewer than the expected 200,000 predicted by economists, wage growth surpassed expectations.
However, futures markets indicated a stronger opening on Wall Street, with contracts tracking the benchmark S&P 500 up by 0.2%, and those tracking the tech-focused Nasdaq 100 advancing by 0.4%.
The slowdown in the jobs market occurs more than a year after the US central bank initiated an aggressive monetary tightening campaign, raising the benchmark federal funds rate to its highest level in 22 years in an attempt to combat inflation. While the majority of the market anticipates the Fed to maintain steady rates in the upcoming September meeting, policymakers have signaled that their decision would rely on several economic data releases prior to the meeting.
On Monday, the dollar gained 0.3% against a basket of six currencies.
Yields on the two-year US Treasury, influenced by policy decisions, increased by 0.05 percentage points to 4.84%, while yields on the benchmark 10-year note rose by 0.04 percentage points to 4.10%. Bond yields rise as prices fall.
Investors’ attention is now focused on the release of the US consumer price index on Thursday, which is expected to show an acceleration in the country’s annual headline inflation rate to 3.3% in July from 3% the previous month.
“For now, investors are waiting for a sense of direction, and the upcoming data points will offer some clarity,” noted Kelemen.
Meanwhile, oil prices retreated after reaching their highest levels in nearly four months on Monday. The retreat was due to concerns about escalating fighting in the Ukraine war and production cuts by Saudi Arabia.
Brent crude, the international benchmark, fell by 0.9% to $85.48 a barrel, after earlier hitting its highest levels since mid-April. Similarly, US marker West Texas Intermediate fell by 1% to $82.03 a barrel.
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