European markets wavered Wednesday following a drop in Asian markets on concerns about the Chinese economy and investor fears of a further Fed rate hike.
While European markets slid on opening, they began to recover following the release of UK inflation data showing it dipped to a 15-month low.
“All eyes are on the European GDP and industrial production data this morning” for July, said Swissquote Bank analyst Ipek Ozkardeskaya.
The British pound strengthened on the inflation data — although the UK still has the highest rate of inflation among G7 nations, and the drop might not be enough to prevent another rate hike next month.
“The result will likely elicit only a slight sense of relief in the government and at the Bank of England,” said Richard Flax, Moneyfarm chief investment officer.
Another focus Wednesday will be the release of minutes from the US Federal Reserve’s July policy meeting, which investors will be scouring for insight on the bank’s interest rate outlook.
Analysts expect the minutes to show “that the Fed officials remain cautious despite the latest fall in inflation numbers,” Ozkardeskaya said.
A bounce in July sales reported in the US on Tuesday, boosted by online spending, showed that consumption has proven more robust than expected, even as the US economy cools.
Comments by Minneapolis Fed president Neel Kashkari on Tuesday also added to concerns that the US central bank is not yet done with rate hikes in its battle to tame inflation.
While inflation may be moving in the right direction, it is still higher than the Federal Reserve would like and it is too early to declare victory, said Kashkari, a member of the Fed’s interest-rate-setting committee.
“I’m not ready to say that we’re done, but I’m seeing positive signs,” Kashkari told a conference.
Banks cut China forecasts
The Tuesday declines on Wall Street added to the risk-off sentiment in Asia on Wednesday, with a further fall in Chinese new home prices in July fuelling concerns over the world’s second-largest economy, which has stumbled since emerging from pandemic isolation.
Asian markets were well in the red, with Tokyo, Hong Kong, Seoul and Sydney all closing down more than 1.0 percent.
“Most Asian stocks experienced declines due to further deteriorating economic conditions in China. These concerns were exacerbated by resurfacing anxieties about a more aggressive stance from the US Federal Reserve, causing a wholesale lack of interest in high-risk assets,” said Stephen Innes of SPI Asset Management.
Figures released Wednesday by China’s National Bureau of Statistics showed new home prices declined for a second month in July in a further indication of the problems facing the deeply indebted property sector and the wider economy.
The data comes on top of a raft of weaker-than-expected figures on Tuesday showing slowing growth in retail sales and industrial production.
Several banks slashed their growth forecasts for China, with JPMorgan Chase cutting its estimate for 2023 to 4.8 percent, well below a May forecast of 6.4 percent, Bloomberg reported.
The recent data suggests China may struggle to achieve its official five percent growth target set for the year.
The economy grew just 0.8 percent between the first and second quarters of 2023, according to official figures.
Key figures around 1015 GMT
London – FTSE 100: DOWN 0.4 percent at 7,362.29 points
Frankfurt – DAX: FLAT at 15,814.66
Paris – CAC 40: FLAT at 7,265.43
EURO STOXX 50: DOWN 0.1 percent at 4,283.86
Hong Kong – Hang Seng Index: DOWN 1.4 percent at 18,329.30 (close)
Shanghai – Composite: DOWN 0.8 percent at 3,150.13 (close)
Tokyo – Nikkei 225: DOWN 1.5 percent at 31,766.82 (close)
New York – Dow: DOWN 1.0 percent at 34,946.39 (close)
Euro/dollar: UP at $1.0923 from $1.0905 at 2050 GMT on Tuesday
Pound/dollar: UP at $1.2751 from $1.2704
Euro/pound: DOWN at 85.66 pence from 85.82 pence
Dollar/yen: UP at 145.58 from 145.57 yen
West Texas Intermediate: DOWN 0.1 percent at $80.88 per barrel
Brent North Sea crude: DOWN 0.1 percent at $84.78 per barrel
