Europe midday: Stocks slip on news out of China, ECB rate hike bets rising

by | Sep 1, 2022

Stocks in Europe were holding lower following an unexpectedly weak reading on a key manufacturing survey out of China overnight and news of fresh lockdowns in Chengdu, the capital of the Sichuan province.
The news came as investors were already fretting regarding the near-term impact that central bank tightening might have on stock markets around the world.

On Thursday, analysts at Morgan Stanley revised their call for the European Central Bank’s 8 September policy meeting, telling clients to expect a 75 basis point hike and that short-term rates were set to rise to 2.0% by March 2023.

As at 1230 BST, the Stoxx 600 was declining by 1.35% to 409.43, alongside a 1.18% drop for the German Dax to 12,684.09.

The yield on Italy’s one-year government note was 13 basis points higher to 1.17%, but prices for similarly-dated German and Spanish debt were intead heading higher and their respective yields lower.

In parallel, the US dollar index was up by 0.33% to 109.06.

In the background, there was some market chatter to be heard regarding the anticipated pick up in the US central bank’s quantitative tightening, which was expected to accelerate starting from Thursday.

Back in the euro area, Eurostat reported that the rate of unemployment in the euro area ticked lower by one tenth of a percentage point in July to reach 6.6%.

According to Pantheon Macroeconomics’s Claus Vistesen, “solid” labour market conditions would embolden the ECB.

Earlier, S&P Global’s factory sector Purchasing Managers’ Index for August was marked from a preliminary reading of 49.8 to 49.6 (consensus: 49.7) on the back of a hefty downward revision to the initial estimate for Germany (partly offset by an offsetting revision to the French numbers).

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