LONDON: Stocks fell across the board in Europe on Monday while Wall Street saw a mixed opening despite relief a US government shutdown had been averted, with investors focusing again on the risks of high interest rates to economic growth.
Hopes that central bankers would start rolling back months of rate hikes have faded in recent weeks, on worries that inflation pressures will persist in coming months, not least due to the recent jump in oil prices.
Indices on both sides of the Atlantic fell to multi-month lows in September as investors kept a wary eye on US Treasury yields – a proxy for expected Federal Reserve rates – which on Monday hit their highest levels since 2007.
Fed chief Jerome Powell was expected to give a speech later in the day, but many investors have already given up hopes that rate cuts could be on the cards anytime soon.
“The Fed and ECB are practically done with hikes. Rather it’s all about the risk that rates don’t get cut – by enough, or in a timely fashion,” analysts at ING said in a research note.
Early gains seen in Europe on news of the US government funding deal were reversed after the soft opening on Wall Street, where analysts noted that the latest debt agreement is only a temporary fix for a few weeks.
“Investors are clearly not impressed by the latest kicking of the can down the road. So, the focus has quickly returned to rising oil prices, and high interest rates,” said Fawad Razaqzada, a market analyst at StoneX.
Even a eurozone unemployment rate that fell to 6.4 percent in August failed to lift sentiment, as investors take a cautious stance ahead of looming corporate earnings season, when CEOs often reveal if they will hit full-year profit targets or not.
Asian markets mixed after US avoids government shutdown
In Asia, Tokyo closed slightly lower, giving up early gains spurred by a positive Bank of Japan business confidence survey as sentiment reverted to risk-avoidance.
Asian markets were subdued with Hong Kong, South Korea and India shut for holidays, while markets in mainland China were closed for a week-long holiday.
Among those trading, Singapore, Sydney, Wellington, Kuala Lumpur and Manila were in the red while Taipei, Jakarta and Bangkok saw gains.
On foreign exchange markets, the yen was weakening towards the 150 level against the dollar.
The yen’s weakness is fuelling speculation that the government may step in to prop up the currency, which has been hammered by the Bank of Japan’s refusal to move away from its ultra-loose monetary policy even as the Fed considers lifting interest rates further.
Oil reversed early gains as investors locked in profits from gains last week that saw prices rise toward $100 a barrel, lifted by output cuts agreed by Russia and Saudi Arabia, ahead of an OPEC ministerial meeting on Wednesday.
Key figures around 1545 GMT
New York - Dow: DOWN 0.4 percent at 33,384.62 points
London - FTSE 100: DOWN 1.3 percent at 7,510.72
Frankfurt - DAX: DOWN 0.9 percent at 15,247.21
Paris - CAC 40: DOWN 0.9 percent at 7,068.16
EURO STOXX 50: DOWN 0.9 percent at 4,137.63
Tokyo - Nikkei 225: DOWN 0.3 percent at 31,759.88 (close)
Hong Kong - Hang Seng Index: Closed for a holiday
Shanghai - Composite: Closed for a holiday
Euro/dollar: DOWN at $1.0508 from $1.0573 Friday
Pound/dollar: DOWN at $1.2135 from $1.2199
Euro/pound: DOWN at 86.58 pence from 86.66 pence
Dollar/yen: UP at 149.79 yen from 149.37 yen
Brent North Sea crude: DOWN 1.4 percent at $90.95 per barrel
West Texas Intermediate: DOWN 1.8 percent at $89.15 per barrel
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