Europe and Asia stocks fall further after Wall Street sell-off
European and Asian stocks were hit with further declines on Wednesday after Wall Street suffered its worst day since December.
The declines have been driven by stronger than expected economic data in the US and Europe, which has raised the prospect of central banks persisting with higher interest rates. Investors on Wednesday will look towards the release of the minutes of the latest US Federal Reserve meeting, at which the benchmark rate was raised by 0.25 percentage points.
In Europe on Wednesday, the region-wide Stoxx 600 and France’s Cac 40 fell 0.75 per cent, while Germany’s Dax dropped 0.65 per cent. London’s FTSE 100 dropped 0.9 per cent.
The latest rout in global stocks was triggered by stronger than expected economic readings from the US and Europe, which prompted investor concerns that central banks might be forced to tighten monetary policy further to subdue inflation.
“It’s no great surprise” that the purchasing managers’ index data has sent equities into a downturn, said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics. “We’re in this world where good news is bad news, so strong PMIs have prompted investors to expect a higher peak in interest rates.”
The S&P Global Eurozone Composite purchasing managers’ index came in at 52.3, above expectations of 50.7.
US stocks recorded their worst day in two months on Tuesday. The US composite purchasing managers’ index notched a preliminary reading of 50.2 for February, just above the 50-point line separating an increase in the number of companies reporting growth in activity compared with those reporting a contraction, and the strongest reading in eight months. Markets had expected the gauge to come in at 47.5.
Stephen Innes, managing partner at SPI Asset Management, said the strong data pointed to “considerable momentum behind the growing consensus that the Fed will hold rates higher for longer in a more robust economic environment”.
The euro was flat, while the dollar index, which measures the greenback against six peer currencies, was up 0.03 per cent.
Asian shares followed Wall Street lower, as investors were unnerved by economic data suggesting interest rates had further to rise.
Japan’s benchmark Topix index fell 1.1 per cent, while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 0.9 per cent and Australia’s S&P/ASX 200 fell 0.3 per cent on Wednesday.
In Hong Kong, the benchmark Hang Seng index gained after a sharp early fall to end 0.5 per cent down after the government announced it would give out consumption vouchers worth HK$5,000 (US$640) to all adult residents to support the city’s recovery from an economic slump.
The declines in Asia came after Wall Street’s blue-chip S&P 500 index closed down 2 per cent on Tuesday, with pullbacks in every sector, while the tech-focused Nasdaq Composite shed 2.5 per cent. They marked the steepest daily losses for both indices since December 15.
In sovereign debt markets, yields on benchmark 10-year US Treasuries were flat at 3.95 per cent, but they remained near the highest levels since November on expectations that the Fed would be forced to continue raising interest rates.
Yields on interest rate-sensitive two-year notes fell 0.02 percentage points to 4.69 per cent after touching a three-month high on Tuesday.
“If you compare sentiment to one month ago, people were expecting the Fed might only have a little room left to hike,” said Dickie Wong, head of research at Kingston Securities. “But now it looks like inflation may not ease up and the Fed will have to raise rates repeatedly.”
The yields on German Bunds fluctuated, with 10-year notes rising 0.01 percentage points to 2.55 per cent, and two-year notes up 0.01 percentage points at 2.96 per cent.
Futures tracking the S&P 500 and the tech-heavy Nasdaq were flat.
Brent crude fell 1 per cent to $82.20 a barrel, while WTI, the US equivalent, dropped 1.2 per cent to $75.47.