European stocks slide as rate concerns resurface

London — European stocks slipped on Wednesday and Wall Street futures were in the red as concern that central bank tightening will stifle global growth weighed on markets.

The World Bank on Tuesday slashed its global growth forecast by nearly a third to 2.9% for 2022, warning of a period of “feeble growth and elevated inflation”, and US Treasury Secretary Janet Yellen told senators that she expected inflation to remain high.

Although Asian stocks strengthened overnight after gains on Wall Street, market sentiment was volatile and European indices were mostly down.

At 7.56am GMT, the MSCI world equity index, which tracks shares in 50 countries, was up 0.1%. But Europe’s Stoxx 600 was 0.3% lower, weighed down by banks after Credit Suisse warned of a group-wide loss in the second quarter.

Nasdaq futures and S&P 500 e-minis were both down about 0.5%.

Analysts said markets were likely to struggle for direction, with focus on the European Central Bank’s meeting on Thursday and US CPI data on Friday.

Investors raised their bets on ECB rate hikes, and as European markets opened, money markets were pricing in 75 basis points of rate hikes by September.

With the bank largely expected to start hikes in July and move in 25 basis-point increments, the pricing implies traders now expect its hikes to include a rare 50 basis-point move at a single meeting by September.

European government bond yields rose, with the benchmark German 10-year yield up 3 basis points at 1.313%.

The 10-year US Treasury yield held just above 3%, having fallen on Tuesday after retailer Target Corp. said it would cut prices, boosting bets that the worst of inflation may be past.

“The tail is wagging the dog: rates are driving equities,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.

“The fundamentals are still unclear in terms of how long is it going to take for inflation to come down, but for the time being there’ll probably be room for consolidation.”

The dollar index was a touch higher, at 102.62. The Japanese yen hit fresh 20-year lows against the dollar and a seven-year low against the euro on expectations that the ECB tightening policy will leave the Bank of Japan as an outlier with its ultra-easy monetary policy. The euro was about 0.1% lower at $1.0688 .

Japan’s economy shrank slightly less than initially reported in the first quarter, as private consumption remained resilient and companies rebuilt inventories.

German industrial production recovered but rose by less than expected in April.

In the UK, the pace of house-price increases slowed for a third straight month in May, and mortgage lender Halifax said that a further cooling of demand is likely.

In cryptocurrencies, bitcoin was trading around $30,455.

Reuters