European Shares Fall on Economic Outlook; China Boost Fades

European Shares Fall on Economic Outlook; China Boost Fades
Traders work on the floor of the New York Stock Exchange (NYSE) in New York on March 7, 2023. (Brendan McDermid/Reuters)

LONDON—European shares faltered on Tuesday, failing to keep up positive momentum that lifted Asian stocks earlier in the session, as investors focused on concerns about the economic outlook for Europe and the United States.

Asian shares received a boost from Chinese Premier Li Qiang saying Beijing will roll out policies to boost China’s economy.

But the positive market sentiment faded in early European trading, with the pan-European STOXX 600 down 0.4 percent by 1149 GMT .

The MSCI World Equity Index was a touch higher, up 0.1 percent on the day at 668.51, having fallen since the 14-month high of 689.04 reached more than a week ago.

MSCI’s Europe index was down 0.1 percent, London’s FTSE 100 lost 0.3 percent and Germany’s DAX declined 0.1 percent.

Hani Redha, multi asset portfolio manager at PineBridge Investments, said the factors that had boosted European shares earlier in the year—relief about the energy crisis easing and China’s surprise post-COVID re-opening—would not last.

“Now fundamentals are going to deteriorate because of the tightening of policy and because of the fading of these temporary tailwinds (which) leaves markets vulnerable,” he said.

Wall Street saw losses on Monday as investors increasingly bet on the U.S. Federal Reserve keeping rates higher for longer. On Tuesday, S&P 500 futures were up 0.1 percent and Nasdaq futures gained 0.3 percent.

The International Monetary Fund’s second-in-command said on Monday that the world’s top central banks may need longer to get inflation back down to target, and a new bout of financial turbulence could make the process even more protracted.

European Central Bank President Christine Lagarde said that eurozone inflation could linger for some time, meaning the central bank is “unlikely” to be able to declare an end to rate hikes in the near future.

Analysts said the hawkish outlook helped to strengthen the euro, which was up 0.5 percent at $1.09435.

Aborted Mutiny

Analysts said markets were generally unaffected on Tuesday by the aborted mutiny of Wagner Group mercenaries in Russia over the weekend.

Oil prices fell as investors focused on U.S. data due later in the session that is expected to give indications of the U.S. appetite for fuel during the summer driving season.

Wheat futures, which had been lifted to a four-month high at the start of the week, declined after profit-taking.

“One other reason for the so-far muted reaction to recent events is that we are coming to the end of the month as well as the first half of the year, with investors indulging in portfolio tweaking rather than any significant shift in asset allocation,” Michael Hewson, chief market analyst at CMC Markets, said in a note to clients.

The U.S. dollar was a touch lower, down 0.2 percent against a basket of currencies ahead of data on durable goods, consumer confidence and new home sales, due later in the session. It hit a seven-month high against China’s yuan as investors braced for the possibility of China doing more to support the currency.

The German yield curve was at its most inverted in nearly 31 years as investors bet that a flagging economy would lead the ECB to cut interest rates after they reach their peak around 4 percent.

Eurozone government bond yields were mixed, with the benchmark German 10-year yield at 2.205 percent.

The Japanese yen fell to its weakest since November versus the U.S. dollar, after Finance Minister Shunichi Suzuki said sharp and one-sided moves were observed in the currency market.