European shares fell on Tuesday, while government debt came under pressure and oil rebounded, as investors prepared for the latest US inflation figures and weighed up what it might mean for central bank interest rate policy.
The regional Stoxx 600 index declined 0.6 per cent, Germany’s Dax fell 1 per cent and France’s Cac 40 lost 0.8 per cent. London’s FTSE 100 fell 0.4 per cent. European bank stocks were among the worst performers, with shares in German lenders Deutsche Bank and Commerzbank both down more than 8 per cent.
Andrew McCaffery, global chief investment officer at Fidelity International, said he was “particularly cautious” on European equities and the euro — down 0.1 per cent against the dollar on Tuesday — given the “likelihood” of recession.
The war in Ukraine would weigh on economic growth and stoke inflation, he added, leaving central bank policymakers and markets facing “an extremely complex picture”.
Investor attention will be focused on the latest US inflation measurements due out later on Tuesday, with the consumer price index for March forecast to have risen 8.4 per cent year over year, according to a Reuters poll.
“This kind of number should support market expectations that the [US Federal Reserve] will take the policy rate towards the 2.5 per cent area by year end,” analysts at ING said in a note. The Fed last month lifted its benchmark interest rate a quarter of a percentage point to 0.5 per cent, the first increase since 2018.
Selling of US government debt moderated on Tuesday ahead of the inflation reading. The yield on the 10-year US Treasury note, which underpins global borrowing costs, rose 0.01 percentage point to 2.79 per cent, hovering close to its highest level since late 2018. The yield on the interest rate-sensitive two-year note rose 0.01 percentage point to 2.52 per cent.
The yield on the 10-year German Bund, a proxy for European borrowing costs, added 0.03 percentage points to 0.84 per cent, its highest level since 2015. The yield on the government note stood at about minus 0.12 per cent at the beginning of the year.
US futures pointed lower, with contracts tracking Wall Street’s S&P 500 and the technology-focused Nasdaq 100 both down.
White House press secretary Jen Psaki told reporters on Monday that March’s headline CPI inflation was expected to be “extraordinarily elevated”, pushed higher by rising prices for energy since Russian president Vladimir Putin’s invasion of Ukraine in late February. So-called core inflation, which strips out volatile food and energy prices, was forecast to come in lower, she added.
The average cost of a barrel of oil in March was about $110, Psaki noted, up from about $75 at the beginning of the year.
Oil prices, which fell on Monday, rebounded back above $100 a barrel on Tuesday. Brent crude, the international oil benchmark, rose 4.3 per cent to $102.71 a barrel, while US marker West Texas Intermediate climbed 3.5 per cent to $97.63
In Asia, Hong Kong’s Hang Seng index closed up 0.5 per cent. China’s CSI 300 added 1.9 per cent. Japan’s Topix shed 1.4 per cent and South Korea’s Kospi declined 1 per cent.
Source: Economy - ft.com
