European stocks fall on fears of elevated global interest rates

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European stocks retreated on Friday after a survey on business activity in the eurozone reinforced investors’ fears that interest rates will stay higher for longer to curb inflation.

Europe’s region-wide Stoxx Europe 600 fell 0.4 per cent, dragged lower by real estate and utilities stocks, while France’s Cac 40 and Germany’s Dax both declined 0.5 per cent.

The moves came after a sell-off overnight on Wall Street, where stocks and bonds slid after the US Federal Reserve said it would maintain its policy of higher interest rates to suppress inflation, putting more pressure on business and consumer demand.

Traders’ downbeat mood was compounded by business surveys in Europe that indicated the eurozone economy was stronger than expected.

The eurozone HCOB flash composite purchasing managers’ index, a measure of manufacturing and services sector activity, rose to 47.1 in September, landing well below analysts’ forecasts of 46.5.

Readings below the neutral 50 mark mean that the majority of businesses responding to the survey reported an overall contraction in their activity, as rising interest rates weighed on the economy. The equivalent PMI figures for the US will follow later on Friday afternoon.

Longer-dated US Treasuries were steady after rising sharply on Thursday. The yield on the benchmark 10-year Treasury, which hit a 16-year high in the previous session, fell 0.01 percentage points to 4.47 per cent.

Futures contracts signalled Wall Street’s benchmark S&P 500 would rise 0.2 per cent when US markets open, a day after the index clocked its biggest drop since March. Contracts tracking the tech-heavy Nasdaq 100 advanced 0.4 per cent.

The dollar, which tends to strengthen when investors expect rates to stay high, advanced 0.2 per cent against a basket of six peer currencies, remaining near its highest level since March.

The Japanese yen weakened 0.5 per cent to trade at ¥148.33 to the dollar after the Bank of Japan announced its widely expected decision to stick with an ultra-low interest rate policy on Friday.

The policy comes even as Japan’s consumer price growth exceeded the central bank’s 2 per cent target for the 17th consecutive month, with the “core” figure rising 3.1 per cent in August.

Adding to price pressures across the world, Brent crude, the international benchmark, rose 0.4 per cent to trade at $93.7 a barrel, remaining near its highest level since November last year. West Texas Intermediate, the US marker, added 0.6 per cent to $90.14.

In its most recent move to prop up oil prices, Russia barred the export of diesel and petrol earlier this week. The country’s crude supply had already been trimmed under a deal with Saudi Arabia and the wider Opec+ group, which has contributed to a 30 per cent jump in oil prices since June.