Receive free Markets updates
We’ll send you a myFT Daily Digest email rounding up the latest Markets news every morning.
European shares declined on Wednesday as investors weighed the impact on asset valuations of a protracted period of high interest rates.
Europe’s region-wide Stoxx Europe 600 index fell 0.1 per cent, sliding back on early morning gains and edging towards its fifth successive session of losses. Germany’s Dax lost 0.2 per cent and Franc’s Cac 40 was flat.
Real estate and utility stocks led fallers in the region, down 1.5 per cent and 1.3 per cent respectively.
The moves follow an overnight sell-off on Wall Street, where the S&P 500 and the Nasdaq Composite hit their lowest levels since June as investors digested the Federal Reserve’s message that interest rates were likely to stay higher for longer as inflation persists.
Contracts tracking Wall Street’s S&P 500 and those tracking the tech-focused Nasdaq 100 both advanced 0.3 per cent ahead of the New York open on Wednesday.
The Fed’s guidance triggered a sharp sell-off in US government bonds earlier in the week, with the yields on long-term Treasuries rising to their highest levels in more than a decade, putting pressure on the equity market.
“For most of this year, equities were able to rally despite rising rates because growth and earnings expectations were revised up too,” said Emmanuel Cau, head of European equity strategy at Barclays.
But the appeal of equities had declined as investors accepted that rates would stay higher for longer, threatening economic growth, he said. “Amid peak central banks’ hawkishness and downside risks to the economy, bonds are looking increasingly attractive versus equities.”
Yields on the benchmark 10-year Treasury slipped 0.05 percentage points to 4.51 per cent on Wednesday, while yields on the 30-year note fell by the same margin to 4.64 per cent.
The dollar, which tends to strengthen when investors expect higher rates, rose 0.1 per cent against a basket of six peer currencies, hitting a fresh 10-month high on Wednesday.
Investors will turn to data on US durable goods orders, due later in the day, hoping to gauge how the economy is faring more than a year after the Federal Reserve began its aggressive monetary tightening campaign to tame inflation.
Economists expect the closely watched gauge of US manufacturing activity to have fallen 0.5 per cent month on month in August, marking a sharp improvement from a 5.2 per cent contraction in the previous month.
Meanwhile, Hong Kong’s Hang Seng index rose 0.8 per cent and China’s CSI advanced 0.2 per cent following a two-day losing streak.
Data showed that profits in China’s industrial sector fell 11.7 per cent year on year in the first eight months of 2023, compared with a larger 15.5 per cent contraction in the first seven months of the year, in a sign that recent support measures may be helping to stabilise the world’s second-largest economy.
Energy and industrial stocks were among those driving the benchmark CSI 300 index higher on Wednesday, up 1.1 per cent and 0.3 per cent, respectively.
Stronger economic data pushed up oil prices, which have risen 30 per cent since June after some of the world’s biggest producers of the fossil fuel announced a series of supply cuts to last until the end of this year.
International benchmark Brent crude added 1.3 per cent to $95.16 while West Texas Intermediate, the US equivalent, rose 1.65 per cent to $91.87. Both edged near their highest levels since November 2022.
Subscribe to receive free updates on the Markets:
Sign up for the exclusive daily email, myFT Daily Digest, to stay informed about the latest developments in the Markets sector. Get a comprehensive roundup every morning.
European Shares Decline as Interest Rates Impact Asset Valuations
On Wednesday, European shares saw a decline as investors assessed the effect of prolonged high interest rates on asset valuations. The Stoxx Europe 600 index, representing the overall region, dropped by 0.1%. This downward movement continued for the fifth consecutive session after initial morning gains. Germany’s Dax decreased by 0.2% while France’s Cac 40 remained flat.
Real estate and utility stocks performed poorly, with a decline of 1.5% and 1.3%, respectively.
This decline follows a sell-off on Wall Street, as the S&P 500 and the Nasdaq Composite touched their lowest levels since June. Investors were digesting the Federal Reserve’s message that interest rates are likely to remain elevated due to persistent inflation.
Contracts tracking the S&P 500 and Nasdaq 100 both showed a 0.3% increase before the opening of New York trading on Wednesday.
Bonds Sell-Off Due to Fed’s Guidance on Higher Rates
The Federal Reserve’s guidance triggered a significant sell-off in US government bonds earlier this week. Long-term Treasury yields rose to their highest levels in over a decade, placing pressure on the equity market. Despite rising rates, equities were able to rally thanks to revised growth and earnings expectations throughout the year. However, the appeal of equities has started to decline as investors come to terms with the notion of persistently higher rates, which poses a threat to economic growth.
The benchmark 10-year Treasury yields slipped by 0.05 percentage points to 4.51% on Wednesday, while the 30-year note yields fell by the same margin to 4.64%.
The US dollar, which typically strengthens when higher rates are expected, rose by 0.1% against a basket of six major currencies and reached a fresh 10-month high on Wednesday.
Focus on US Durable Goods Orders and Manufacturing Activity
Investors are eagerly awaiting data on US durable goods orders to assess the state of the economy over a year after the Federal Reserve initiated its aggressive monetary tightening campaign to combat inflation. Economists predict a month-on-month decline of 0.5% in August, indicating a significant improvement from the 5.2% contraction in the previous month.
Hong Kong and China’s Stocks Recover
After a two-day losing streak, Hong Kong’s Hang Seng index rose by 0.8%, while China’s CSI posted a 0.2% gain. Recent support measures seem to be stabilizing China’s industrial sector, as profits fell by 11.7% in the first eight months of 2023, compared to a larger 15.5% contraction in the first seven months of the year.
Energy and industrial stocks were the primary drivers behind the 1.1% and 0.3% increase in China’s benchmark CSI 300 index on Wednesday.
Oil Prices Rise on Strong Economic Data
Stronger economic data led to a surge in oil prices, rising by 30% since June. Major oil producers have announced supply cuts that will continue until the end of the year, contributing to the price increase. Brent crude, the international benchmark, rose by 1.3% to $95.16, while West Texas Intermediate, the US equivalent, saw a 1.65% increase to $91.87. Both prices reached levels close to their highest since November 2022.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
