European stocks fall and bonds rally on worse than expected economic data

European stocks fell on Thursday and regional government bonds rallied, as weaker-than-expected business activity surveys compounded investors’ worries about the pace of global economic growth.

The regional Stoxx 600 share index was down 0.7 per cent by late morning, while the FTSE 100 lost 0.4 per cent and Germany’s Dax index fell 1.2 per cent, after the closely watched S&P Global purchasing managers’ indices were below forecasts.

The survey on business activity for the eurozone registered a reading of 51.9 for June, lower than consensus estimates of 54 according to a Reuters poll. The S&P Global composite survey for Germany — spanning services and manufacturing — gave a reading of 51.3, against expectations of 53.1. A figure above 50 signifies an improvement on the previous month.

“Excluding pandemic lockdown months, June’s slowdown [for the eurozone] was the most abrupt recorded by the survey since the height of the global financial crisis in November 2008,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

In government debt markets, Germany’s 10-year Bund yield fell 0.16 percentage points to 1.46 per cent as investors scooped up the assets typically perceived to be lower risk. The yield on the 10-year US Treasury note, which underpins pricing for debt worldwide, dropped 0.05 percentage points to 3.11 per cent. Bond yields fall as their prices rise.

Those moves came as Norges Bank joined the wave of central banks raising interest rates aggressively to tackle inflation, lifting its main lending rate by 0.5 percentage points on Thursday to 1.25 per cent in its first such increase since July 2002. Norway’s rate rise followed on from the US Federal Reserve lifting borrowing costs by 0.75 percentage points last week, its biggest increase since 1994.

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

Erica Dalstø, chief Norway strategist at Scandinavian bank SEB, said hawkish moves from other central banks had enabled Norges Bank to deviate from its guidance. “It’s obvious that Norges Bank is becoming much more worried about inflation risks to the extent that they are no longer referring to the risk on households.”

On Wednesday, Federal Reserve chair Jay Powell had said on the first leg of a two-day congressional testimony that recession is “certainly a possibility”. He told US lawmakers that it was becoming more challenging for the central bank to tackle inflation while maintaining a strong job market.

Despite his signals that the US economy remained strong, Powell’s comments led to a dip in US stocks on Wednesday night, with the S&P 500 ending the day down 0.1 per cent. Futures contracts tracking the S&P ticked up 0.1 per cent on Thursday.

Brent crude slipped almost 2 per cent lower on Thursday to under $110, having slid as much as 6.6 per cent the previous day.

Copper also fell to its lowest price in 16 months, with futures dropping 1.9 per cent to $8,611 in London. The metal is generally seen as a strong indicator of the economic outlook, due to its uses in manufacturing.

In Asia, Hong Kong’s Hang Seng share index gained 1.3 per cent, after Chinese state media reports of extended tax exemptions for buyers of electric vehicles buoyed stocks in the sector. Japan’s Topix index was flat.

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