European stocks extend losses on interest rate fears

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European stocks fell on Friday after hitting a five-week low the day before as investors grappled with the prospect of global interest rates staying higher for longer.

Europe’s region-wide Stoxx 600 fell 0.8 per cent, extending its losses into a fourth successive trading session, while France’s Cac 40 slipped 0.9 per cent and Germany’s Dax declined 0.8 per cent. 

Global stocks followed Wall Street lower for much of this week as robust US economic data stamped out hopes that the Federal Reserve — which took interest rates to a 22-year high last month — would start cutting rates soon.

The US labour department on Thursday reported that the number of people applying for unemployment benefits declined in the week ending August 12, a sign that the country’s job market remained resilient to high borrowing costs.

US futures contracts pointed to a subdued open on Wall Street, with those tracking the benchmark S&P 500 down 0.2 per cent and those of the tech-focused Nasdaq 100 falling 0.4 per cent.

The equity sell-off reverberated in government debt markets earlier in the week. Yields on the benchmark 10-year US Treasury closed at their highest level since 2007 on Thursday before slipping 0.08 percentage points to 4.23 per cent on Friday. Bond yields rise as prices fall.

Yields on 10-year UK gilts fell 0.08 percentage points to 4.67 per cent on Friday. Yields on the 10-year German Bund — Europe’s regional benchmark — declined by the same margin to 2.62 per cent.

Traders’ nerves were stretched further by the continuous flow of weak economic data releases from China, which solidified fears that the world’s second-largest economy could take a while to fully rebound from three years of severe Covid-19 restrictions.

China’s CSI 300 stock index fell 1.2 per cent and Hong Kong’s Hang Seng shed 2.1 per cent. Japan’s Topix fell 0.7 per cent and South Korea’s Kospi slid 0.6 per cent. 

The renminbi strengthened 0.1 per cent against the dollar to trade at Rmb7.2856, after the People’s Bank of China stepped up its defence of the currency.

The central bank set the daily midpoint — around which the currency is allowed to trade 2 per cent in either direction — at Rmb7.2006 to the dollar, well above market expectations.