European stocks stumble as rate concerns return

European stocks fell at the open on Tuesday as investors’ concerns resurfaced that interest rates in the eurozone would stay higher for longer to curb inflation.

Europe’s region-wide Stoxx 600 fell 0.3 per cent, breaking its two-day winning streak, while France’s Cac 40 and Germany’s Dax were down 0.3 per cent and 0.2 per cent respectively.

The moves come a day after the European Commission raised its forecasts for EU-wide consumer price inflation, which is now expected to hit 6.7 per cent this year and 3.1 per cent next year, compared with its earlier projections of 6.4 per cent and 2.8 per cent respective.

Data later on Tuesday will offer insight into the impact higher rates have had on economic growth in the eurozone, which is expected to have stagnated at 1.3 per cent year on year in the first quarter of 2023, according to economists polled by Reuters.

Traders are also awaiting the release of the ZEW survey, Germany’s gauge of economic sentiment, which analysts predict will decline from 4.1 to minus 5.3 in the month to May.

London’s FTSE 100 lost 0.1 per cent, after official data showed that the UK unemployment rate increased by 0.1 percentage points to 3.9 per cent, as the rising cost of living prompted more job leavers to return to the market.

The pound lost 0.2 per cent against the dollar, trading at $1.249.

Meanwhile, Wall Street futures were also down, with contracts tracking the benchmark S&P 500 falling 0.2 per cent while those tracking the tech-heavy Nasdaq 100 down 0.1 per cent.

US retail sales data for April, coming out later on Tuesday, will offer a snapshot on the health of the American consumer amid cooling inflation and higher borrowing costs.

The impasse over the US debt ceiling continued to weigh on markets, with President Joe Biden set to meet the Republican House speaker Kevin McCarthy to discuss the possibility of increasing the nation’s spending limit, weeks before it runs out of money.

The yield on interest rate-sensitive two-year Treasury notes fell 0.02 percentage points to 3.98 per cent, while the yield on the 10-year note was down 0.03 percentage points at 3.7 per cent. Bond yields rise when prices fall.

Asian equity markets were subdued, with China’s CSI index posting a 0.5 per cent fall after a string of official data showed that the world’s second-largest economy was failing to regain momentum, despite its reopening after a lengthy Covid-19 shutdown.

Official data showed that China’s retail sales rose 18.4 per cent compared with the same period last year, while industrial production added 5.6 per cent. Both readings were far below the expectations of economists polled by Reuters, who had forecast readings of 21 per cent and 10.9 per cent, respectively.

Hong Kong’s Hang Seng index lost 0.2 per cent. Japan’s Topix was the outlier, gaining 0.6 per cent and climbing to its highest level in almost 33 years.

Foreign investors have been drawn to Tokyo stocks by potential improvements to corporate governance, a return to wage inflation and the perceived stability of the market compared with geopolitics-riven Chinese stocks.