European slipped lower on Thursday and government bonds rallied after weaker than expected business activity surveys compounded stocks over the economic outlook.
The regional Stoxx Europe 600 share index was down 0.5 per cent by early afternoon in London, while the UK’s FTSE 100 lost 0.4 per cent. In futures markets, contracts tracking Wall Street’s S&P 500 rose 0.4 per cent, after the broad gauge closed 0.1 per cent lower on Wednesday. Contracts tracking the technology-heavy Nasdaq 100 rose 0.5 per cent.
An S&P Global survey of business activity in the eurozone on Thursday registered a reading of 51.9 for June, lower than consensus estimates of 54 according to a Reuters poll. A country-specific composite survey for Germany — spanning services and manufacturing — gave a reading of 51.3, against expectations of 53.1. Any figure above 50 signifies expansion.
“Excluding pandemic lockdown months, June’s slowdown [for the eurozone] was the most abrupt recorded by the survey since the height of the global financial crisis in November 2008,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
In government debt markets, Germany’s 10-year Bund yield fell 0.18 percentage points to 1.45 per cent as investors scooped up the assets typically perceived to be lower risk. The yield on the 10-year US Treasury note, seen as a proxy for borrowing costs worldwide, dropped 0.05 percentage points to 3.1 per cent. Bond yields fall as their prices rise.
On Wednesday, Federal Reserve chair Jay Powell said on the first of two days of congressional testimony that recession was “certainly a possibility“,” though he argued that the world’s largest economy was sufficiently resilient to withstand tougher monetary policy.
Oil prices slipped 0.3 per cent lower to just over $111 a barrel on Thursday, extending steeper losses from the previous day.
Kit Juckes, global fixed income strategist at Société Générale, said consumer demand remained strong despite rate rises from central banks, though he suggested that there would be little clarity in markets until after the summer. “It’s all as clear as mud,” he said. “It doesn’t matter how much you put interest rates up now, demand is going to be red hot this summer and then it could cool off or maybe it carries on; we’ll have to see.”
Thursday’s moves in equity and bond markets also came as Norges Bank joined a wave of central banks raising interest rates aggressively to tackle inflation, lifting borrowing costs by 0.5 percentage points to 1.25 per cent in its first such increase since July 2002. Norway’s rate rise followed on from the Fed raising rates by 0.75 percentage points last week, its biggest increase since 1994.
The Bank of England and the Swiss National Bank also raised rates last week, while the European Central Bank splt out plans for its first increase in more than a decade next month.
Erica Dalstø, chief Norway strategist at Scandinavian bank SEB, said hawkish moves from other central banks had enabled Norges Bank to deviate from its guidance. “It’s obvious that Norges Bank is becoming much more worried about inflation risks to the extent that they are no longer referring to the risk on households.”
In Asia, Hong Kong’s Hang Seng share index gained 1.3 per cent and Japan’s Topix index was flat.