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European and Asian stocks fell on Friday as traders closed out a week marred by geopolitical tensions between China and the US, and softer economic data that dented valuations in Asia’s largest economy.
The region-wide Stoxx Europe 600 fell 0.8 per cent, extending early-morning losses as consumer goods stocks led declines. France’s Cac 40 lost 0.8 per cent and Germany’s Dax declined 0.5 per cent.
Asian markets were also lower as investors continued to digest data earlier in the week that showed China’s exports fell by the most since the beginning of the Covid-19 pandemic, amplifying concerns about the country’s economic growth.
Hong Kong’s Hang Seng index shed 0.9 per cent, ending the week 1.5 per cent lower, while China’s CSI 300 fell 2.3 per cent, leaving it down 1.1 per cent in the week.
Futures contracts tracking US markets were subdued ahead of the New York open as an overnight rally on Wall Street fizzled out. Investor optimism over softer inflation gave way to caution after a weaker-than-expected 30-year Treasury bond auction.
Contracts tracking the benchmark S&P 500 were flat, while those for the tech-heavy Nasdaq 100 slipped 0.1 per cent ahead of the New York open.
The latest US inflation reading on Thursday showed prices rose at an annual rate of 3.2 per cent in July, marginally below the 3.3 per cent expected, in a sign that rising interest rates were beginning to feed through to the world’s largest economy.
The data release “should provide the Fed with further evidence that it has made progress in taming inflation without pushing the economy into recession”, said David Alexander Meier, economist at Julius Baer.
At the same time, the US Treasury sold $23bn in long-dated bonds at a high yield of 4.189 per cent, slightly above market levels ahead of the bid deadline. The coupon on the new debt was the highest since June 2011.
The yield on the benchmark 10-year Treasury note rose 0.02 percentage points to 4.1 per cent on Friday, while the two-year yield was flat at 4.83 per cent. Bond yields rise when prices fall.
London’s FTSE 100 was down 1.1 per cent, and the pound rose after preliminary data showed the UK’s economy expanded 0.4 per cent in the second quarter, overshooting analysts’ expectations of a 0.2 per cent increase.
The pound gained 0.4 per cent against the dollar to trade at 1.2723 following the data release.
Strong gross domestic product data “may spur more rate hikes than markets expected, with the Bank of England handed more room to do so without triggering a recession given the economy’s strength”, said John Choong, equity and markets analyst at Investing Reviews.
The UK has lagged behind its peers in Europe and the US in its efforts to cool raging inflation, raising concerns that the BoE will need to keep interest rates higher for longer, putting a strain on the economy.
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