Eurozone bonds rebound after weaker than expected business surveys

European stocks fell on Thursday and government bonds rallied after weaker-than-expected business activity surveys heightened worries about the economic outlook.

The Stoxx Europe 600 regional stock index fell 0.5% in early afternoon trading in London, while Britain’s FTSE 100 lost 0.4%. In the futures markets, contracts that track Wall Street’s S&P 500 rose 0.4%, after the broad gauge closed down 0.1% on Wednesday. Contracts trailing the tech-heavy Nasdaq 100 rose 0.5%.

An S&P Global survey of business activity in the euro zone on Thursday recorded a reading of 51.9 for June, below consensus estimates of 54 according to a Reuters poll. A country-specific composite survey for Germany – covering services and manufacturing – gave a reading of 51.3, against expectations of 53.1. Any number above 50 signifies expansion.

“Excluding month of pandemic containment, slowdown in June [for the eurozone] was the sharpest recorded by the survey since the height of the global financial crisis in November 2008,” said Chris Williamson, chief economist at S&P Global Market Intelligence.

In government debt markets, the yield on the German 10-year Bund fell 0.18 percentage points to 1.45% as investors scooped up assets generally perceived as lower risk. The yield on the 10-year US Treasury note, considered a proxy for global borrowing costs, fell 0.05 percentage points to 3.1%. Bond yields fall as their prices rise.

On Wednesday, Federal Reserve Chairman Jay Powell said in the first of two days of congressional testimony that a recession was “definitely a possibility”, although he argued the world’s largest economy was resilient enough. to resist tighter monetary policy.

Oil prices fell 0.3% to just over $111 a barrel on Thursday, extending larger losses from the previous day.

Kit Juckes, global fixed income strategist at Societe Generale, said consumer demand remained strong despite central bank rate hikes, although he suggested there would be little clarity in the markets. before summer. “Everything is as clear as mud,” he said. “No matter how much you raise interest rates now, demand is going to be hot this summer and then it might calm down or maybe continue; we will have to see.

Thursday’s moves in stock and bond markets also came as Norges Bank joined a wave of central banks aggressively raising interest rates to fight inflation, raising borrowing costs by 0 .5 percentage points to 1.25% in its first such increase since July 2002. Norway’s rate hike followed following the Fed’s 0.75 percentage point hike last week , its largest increase since 1994.

The Bank of England and the Swiss National Bank also hiked rates last week, while the European Central Bank outlined plans for its first hike in more than a decade next month.

Erica Dalstø, chief strategist for Norway at Scandinavian bank SEB, said hawkish actions by other central banks had allowed Norges Bank to deviate from its forecast. “It is clear that Norges Bank is increasingly concerned about inflation risks as it no longer refers to the risk on households.”

In Asia, Hong Kong’s Hang Seng stock index gained 1.3% and Japan’s Topix index was flat.

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