European stocks extended their decline to the lowest level since July, dragged lower by renewed worries over China’s property sector and concerns around a higher-for-longer narrative from central banks.
(Bloomberg) — European stocks extended their decline to the lowest level since July, dragged lower by renewed worries over China’s property sector and concerns around a higher-for-longer narrative from central banks.
The Stoxx 600 Index fell 0.6% at the close in London, with technology and real estate sectors among the biggest laggards. Semiconductor-equipment maker ASM International NV fell after giving earnings guidance that underwhelmed investors. Luxury stocks including Richemont and LVMH dropped after Morgan Stanley cut earnings estimates for the industry, citing weakness in China.
More drama over the possible liquidation of China Evergrande Group added to stress in the country’s property sector. The news, which contrasts with a slew of recent government measures to prop up housing demand, has fueled investor confusion over whether authorities have a unified plan to stabilize the market.
Stocks extended losses further on Tuesday afternoon as Minneapolis Fed President Neel Kashkari said he sees 40% probability that the US central bank needs to push rates higher, which is more than what is priced by markets at the moment.
European equities have been under pressure this month as worries mounted about central banks staying hawkish for longer to fight inflation. As a result, value stocks have made a comeback, with the MSCI Europe Value Index now heading for its biggest monthly outperformance over its growth counterpart since January 2022.
READ: Value Has an Edge in This Higher-for-Longer Regime: Taking Stock
Traders are selling German 10-year government securities — the benchmark for long-term borrowing costs in Europe — this month at the fastest pace since February, driving the yield to its highest since 2011 as the European Central Bank’s message that higher rates will persist sinks in. Investors are also digesting hawkish comments from Federal Reserve officials.
“I think it is higher for longer idea that hurts stocks — investors are finally coming around to the idea that the US economy is too strong for the Fed to cut rates,” says Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “At the same time, the effect of previous hikes is beginning to catch up with us.”
JPMorgan Chase & Co. CEO Jamie Dimon said rates may need to rise further to fight inflation, adding that the difference between 5% and 7% would be more painful for the economy than the move from 3% to 5% was. His comments contrast with the consensus view that the Fed is approaching the end of its tightening cycle.
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