Traders await Fed minutes, causing European stocks to trade lower

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European stocks witnessed a decline on Wednesday, extending yesterday’s sell-off. Investors eagerly awaited the release of minutes from the Federal Reserve’s last meeting, hoping to gain insights into the future direction of US interest rates. The Stoxx Europe 600 fell 0.2%, while the FTSE 100 and France’s Cac 40 both experienced marginal declines. Additionally, concerns over China’s economy, struggling to recover from Covid-19 restrictions, added to the negative sentiment.

Prior to the opening bell in New York, futures contracts for the tech-focused Nasdaq 100 and the benchmark S&P 500 both showed a 0.1% decrease. This followed a five-week low for blue-chip stocks in the US and Europe after strong US retail data raised worries about persistent price pressures and increased expectations of higher interest rates by the Fed.

Investor attention shifted to the release of the minutes from the Fed’s latest policy meeting, which were scheduled for later in the day. Market participants hoped that these minutes would provide further clarity on the central bank’s future rate decisions. Padhraic Garvey, Americas regional head of research at ING, suggested that given the resilience of the US economy, especially the consumer, questions about inflation and whether sufficient measures have been taken to address it might become more significant.

At their previous meeting in July, Fed policymakers raised the benchmark federal funds rate to a 22-year high, acknowledging that future tightening would depend on economic data. While many market participants believe that the Fed’s tightening campaign has already concluded, there is less consensus on when interest rates will start decreasing. Yields on the two-year US Treasuries fell, while yields on the benchmark 10-year note also declined.

In Asia, markets were overshadowed by disappointing data from China, indicating that new home prices had further declined. Hong Kong’s Hang Seng index dropped 1.4%, China’s benchmark CSI 300 decreased by 0.7%, South Korea’s Kospi shed 1.5%, and Japan’s Topix lost 1.3%. China’s property sector, once dominant, has been struggling due to weakened demand, caused by three years of pandemic restrictions and a subsequent debt crisis among large property developers.

The decline in the property sector comes amid concerns about China’s economic recovery, as recent data releases suggest deflationary pressures and sluggish consumer and business activity. In an unexpected move aimed at boosting growth, the People’s Bank of China lowered its one-year, medium-term lending facility rate that influences loans to financial institutions.

In the UK, the sterling increased by 0.2% against the dollar, trading at $1.2734. New data revealed a decline in the annual rate of UK inflation from June to July, while the core figure remained unchanged.