Global stocks ease after poor European data
London — European and Asian shares were lower on Tuesday after poor economic data from France and Spain.
France’s EU-harmonised consumer prices rose to a record 7.2% in February and Spain’s EU-harmonised 12-month inflation was 6.1%, up from 5.9% in January and above analysts’ expectations of 5.5%.
The pan-European Stoxx 600 index dropped 0.4%, though is still on track for a 1.7% gain this month, its fourth positive month in five.
The MSCI’s All-World index of global shares fell 0.1%, close to its lowest in almost seven weeks recorded on Friday.
The index was set to end the month almost 3% lower, erasing some of the gains from January, when share markets had risen on expectations that the world’s main central banks were close to the end of their tightening cycle.
Since then a slew of US and euro-area economic data has reinforced the view that interest rates will rise further and stay high for longer.
“The Fed is expected to finish hiking rates at about 5.5% by October this year,” said Matthias Scheiber, global head of portfolio management for the Systematic Edge team at Allspring. “That’s quite a change from the beginning of the year when markets were pricing in a peak rate of 4.8%.”
Fed funds futures are fully pricing in a 25 basis-point rate rise from the Federal Reserve next month, with about a 20% chance of a 50bp point hike, while December 2023 ECB euro short-term rate forwards rose to 3.875%, implying a deposit rate of 3.975% by year-end, from 3.775% on Thursday last week.
The MSCI’s broadest index of Asia-Pacific shares outside Japan traded 0.4% lower at 511.39 points, pinned near the eight week low it touched on Monday.
On bond markets, Germany’s 10-year yield, the benchmark for the euro area, rose 7bp to 2.66%, its highest since July 2011. Benchmark 10-year yields in France and Spain both hit multiyear highs.
Preliminary euro area consumer price inflation data for February is due on Thursday, while investors will get more information on the state of the US economy with the ISM manufacturing and services survey data for February due on Wednesday and Friday, respectively.
“It’s one thing for the Fed to hike and bring inflation down but what they don’t want is a hard landing,” Allspring’s Scheiber said. “The ISM data released this week will give us a bit more of a clue on how the US economy is dealing with higher interest rates so far.”
The US 10-year yield rose 3bp to 3.9473%, having risen more than 40bp in February, its biggest monthly jump since September.
On the currency market, sterling was last trading at $1.2086, a further 0.2% stronger against the dollar, after gaining 1% on Monday after the UK struck a new trade deal with the EU, brightening the outlook for the post-Brexit UK economy.
The euro was 0.1% firmer to $1.0619, after strengthening 0.6% on Monday.
The dollar index, which measures the US currency against six peers, was flat at 104.64 and was set to snap a four-month losing streak, after gaining 2.5% in February.
Elsewhere, Chicago wheat futures were hovering near a 17-month low after rain in parts of the US winter wheat belt and optimism about a Russia-Ukraine export deal.
Gold was at $1,810 an ounce, having fallen around 6% in February.