Europe midday: Shares lower as BoJ yield move rattles investors; Atos slumps

by | Jul 28, 2023

(Sharecast News) – European shares were lower on Friday as investors fretted that more rate hikes were on the horizon after US GDP grew more than expected and the Bank of Japan’s decision to make its yield curve control policy more flexible sent ripples through bond markets.
The pan-European Stoxx 600 index was down 0.48% with only Spain’s Ibex and the UK’s FTSE 100 higher.

Stocks closed Thursday higher after the European Central Bank raised rates as expected but indicated that a pause might be on the horizon.

US GDP grew 2.4% in the second quarter, according to official flash estimates, following the 2% growth recorded in the first quarter and better than expectations of 1.8%.

The Bank of Japan on Friday maintained negative interest rates but said it would now allow “greater flexibility” in its target range for 10-year government bond yields.

The country’s strict yield curve control policy would now allow movements of around plus and minus 0.5% without “rigid limits,” the central bank said.

It also offered to buy 10-year bonds at 1% every business day through fixed-rate operations, expanding its tolerance by another 50 basis points. Yields for the bonds stood at 0.539%, their highest level since September 2014.

Meanwhile, the French economy expanded by 0.5% in the second quarter, an improvement from the revised 0.1% growth in the previous quarter, and also better than expected.

“New data showed the US economy grew more than expected in the second quarter, throwing some water on the idea that the Federal Reserve’s about to end its hiking cycle,” said Hargreaves Lansdown analyst Sophie Lund-Yates.

“This led the Dow Jones Industrial Average to break an impressive winning streak. Markets are also facing a brief relief as the flurry of earnings slows a little for the traditionally quieter Friday. The more resilient economic data from across the pond has also seen treasury yields spike.”

“More broadly, Europe is looking at a mixed open too. Ultimately, markets are continuing to assess the benefits of a growing economy against the depth of the cuts to consumer sentiment and spending which will be triggered by the higher rate environment.”

In equity news, shares in Asia-focused bank Standard Chartered rose after half-year profits smashed estimates and it unveiled a $1bn share buyback.

British Airways owner IAG also took off as the airline group posted record operating profit.

Ams-Osram surged more than 10% after announcing that it was exiting its non-core semi-conductor business.

Atos slumped by more than a fifth after reporting a wider half-year operating loss due to restructuring costs related to its planned split.

The tech group is in the process of splitting into two separately listed companies, consisting of its cybersecurity and digital transformation unit Eviden and loss-making legacy services branch Tech Foundations.

Reporting by Frank Prenesti for Sharecast.com

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