European stocks slip as traders fret over sagging demand from China

European equities fell on Monday, led by declines for mining and basic materials stocks, as investors fretted that a slow economic recovery in China would curb demand.

Europe’s region-wide Stoxx 600 lost 0.6 per cent in the opening hour of trade while France’s Cac 40 fell 0.4 per cent and London’s FTSE 100 was down 0.4 per cent.

The S&P 600 basic resources index led fallers across the region, down 1.4 per cent. In London Glencore fell 0.9 per cent and Rio Tinto shed 1 per cent while ArcelorMittal fell 1.3 per cent in Luxembourg.

Asian equities were down, with Hong Kong’s Hang Seng index falling 0.8 per cent while China’s CSI 300 gave up 0.8 per cent, as investors expected the People’s Bank of China to cut its benchmark loan prime interest rates on Tuesday to boost the economy. Trading is expected to be subdued on Monday as US markets will be closed for a federal holiday.

Traders were also looking ahead to key UK economic data and a monetary policy decision from the Bank of England later this week. Markets are anticipating another quarter-point rise from the BoE, which would lift rates to a 15-year high of 4.75 per cent.

Ahead of that will be data on Wednesday that is expected to show that the annual rate of consumer price inflation in Britain edged down to 8.5 per cent in May, from 8.7 per cent in April, but remains well above the central bank’s target. 

“The Bank of England’s task of engineering a soft landing for the economy is made harder by resilient activity and sticky inflation,” said Ian Stewart, Deloitte’s chief economist in the UK.

Yields on two-year gilts, which are sensitive to interest rate changes, rose 0.05 percentage points to 4.98 per cent and hit their highest level since 2008. The yield on the benchmark 10-year rose 0.01 percentage points to 4.42 per cent. Bond yields rise as prices fall.

The declines in stock prices came after US indices on Friday notched their biggest weekly gains since late March, as investors hoped that the Federal Reserve neared the end of its historic tightening campaign to tame inflation. 

The Fed last week paused its campaign of interest rate rises for the first time in more than a year, even as it suggested there would be further interest rate increases to come.

The dollar, which strengthens when investors expect higher rates, gained 0.1 per cent against a basket of six peer currencies, having picked up after the Fed’s policy announcement.