Sweden, UK lead European shares lower on rate-hike fears
By Shashwat Chauhan and Ankika Biswas
(Reuters) -UK and Swedish stocks led declines among European peers on Tuesday after data from both countries triggered worries about high interest rates, while China-exposed shares fell as Beijing’s policy support failed to boost investor sentiment.
The pan-European STOXX 600 index closed 0.9% lower, touching an over one-month intraday low, while both London’s FTSE 100 and Stockholm stocks fell over 1%.
British government bond yields shot up after data showed domestic basic wages hit a new record growth rate, boosting chances of further Bank of England rate hikes.
“Despite signs of cooling labour market, the strength of wage growth – and in particular, private sector pay growth – will be worrying… this should leave the prospect of a 50-bps hike on the table for September” said Sanjay Raja, senior economist at Deutsche Bank in a note.
Another report showed Sweden’s pace of inflation held steady at 9.3% in July, still too high for the central bank to mull hiking rates again at its September meeting.
The China-exposed miners’ index lost 1.5%, hitting an over two-year low intraday, as base metal prices fell after data showed Chinese retail sales, industrial output and investment growing at a slower-than-expected pace.
Even as China’s central bank cut key policy rates, analysts say more support is needed to boost a rocky post-pandemic recovery.
“A lot of the bad news has been priced in and we’re in a scenario where the worst news means more support is likely to be promised, but the rate cuts are not massively a surprise and so the market isn’t reacting very strongly to it,” said Giles Coghlan, chief market analyst at HYCM.
Heavily China-exposed luxury giants LVMH, Hermes and Kering fell around 1% each, with the luxury index down 1.2%.
HSBC, Europe’s largest bank doing business in China, dropped 3.4%, the biggest drag on the STOXX 600.
Sentiment also took a hit from stronger-than-expected U.S. retail sales data which stoked worries rates may stay higher for longer, weighing on Wall Street’s main indexes. [.N]
The benchmark STOXX 600 has come off its more than one-year highs hit in July, pressured by growing concerns over China’s economy and sharp movements in bond yields.
British retailer Marks & Spencer jumped 8.3% to top the STOXX 600 after raising its profit outlook, while Danish jewellery maker Pandora added 2.7% after raising its full-year revenue outlook.
Embracer lost 5% after analysts pointed to a report revealing a previously unknown partner in a collapsed deal with the Swedish game maker.
Equity markets in Greece and Italy were shut on Tuesday for national holidays.
(Reporting by Shashwat Chauhan and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta and Bernadette Baum)