Global Markets: European Exchanges Lose All Yesterday’s Gains

On European exchanges on Wednesday morning, stock prices fell, losing all yesterday’s gains, as the energy crisis slows economic growth, while high inflation is expected to lead to an increase in interest rates by the European Central Bank.

The STOXX 600 index of leading European stocks was down 0.9 percent at 9:30 AM.

The London FTSE index fell 1.16 percent to 7,215 points, while the Frankfurt DAX slid 0.73 percent to 12,777 points, and the Paris CAC dropped 0.72 percent to 6,060 points.

Investors are reluctant to take on riskier investments as the energy crisis could push the eurozone economy into recession.

Additionally, on Thursday, the leaders of the European Central Bank will meet to raise interest rates again, possibly by 0.75 percentage points.

Asian stock prices also fell, with the MSCI index of Asia-Pacific stocks, excluding Japan, down more than 1 percent around 9:30 AM.

On the Tokyo Stock Exchange, the Nikkei index weakened by 0.7 percent, while stock prices in Australia, South Korea, and Hong Kong slid between 1 and 1.4 percent. In Shanghai, however, they slightly increased.

Asian investors were disappointed by yesterday’s decline on Wall Street, where the Dow Jones fell 0.55 percent, while the S&P 500 slid 0.41, and the Nasdaq index dropped 0.74 percent.

On the first trading day of the new week, following the holiday on Monday, uncertainty prevailed on the world’s largest stock exchange, with new economic indicators in focus for investors.

According to these indicators, activity in the services sector in the U.S. strengthened in August for the second consecutive month, thanks to strong growth in orders and employment, while the improvement in supply chain conditions eased price pressures.

Better-than-expected indicators from the services sector alleviated fears of recession but also supported expectations that the Fed will continue to aggressively raise interest rates to curb inflation.

– The Fed is telling us that its future moves will depend on economic indicators, so we cannot only look at what these indicators suggest, but also at what it means for the Fed –  says Carol Schleif, director at BMO Family Office.

Investors are reluctant to take on riskier investments as the U.S. central bank has been tightening monetary policy since March to curb inflation, which is at its highest levels in over 40 years.

As a result, an aggressive increase in interest rates is also expected in September, most likely by 0.75 percentage points.

Investors are also concerned about ‘lockdowns’ in China due to COVID-19, which could further slow the growth of the world’s second-largest economy.

Nomura analysts have downgraded their estimate for China’s gross domestic product (GDP) growth this year to just 2.7 percent.

In that brokerage, they also estimate that due to ‘lockdowns’ related to COVID-19, 12 percent of GDP is currently affected.

The slowdown in the growth of the world’s second-largest economy is also indicated by the foreign trade data released this morning.

Chinese exports rose by 7.1 percent year-on-year in August, significantly slower than a month earlier and less than the 13 percent expected by analysts.

Imports also rose less than expected, by only 0.3 percent year-on-year, and significantly slower than a month earlier.