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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.
