ECONOMY

European stocks open lower as China growth slows

European equities and global government bonds softened as data confirmed a deep slowdown in China’s economy and investors poised for western central banks to tighten ultra-loose monetary policy.

The regional Stoxx 600 share index, which rose more than 2 per cent last week as global markets rallied to cheer strong corporate earnings, fell 0.4 per cent in early dealings. London’s FTSE 100 slipped 0.1 per cent. Futures markets signalled that Wall Street’s S&P 500 would open 0.3 per cent lower.

“Slowing China growth and global inflation concerns could bring headwinds to risk assets,” such as equities, strategists at Citi wrote in a note to clients. “Global equities are likely to be under pressure in coming months.”

China’s gross domestic product advanced by just 0.2 per cent between the second and third quarters of this year, government data showed on Monday, as economic activity was curbed by the twin pressures of an energy supply shortage and a government crackdown on real estate speculation.

Over the weekend, Bank of England governor Andrew Bailey warned the nation’s interest rate setters would “have to act” to curb inflation sparked by rising energy prices and pandemic-related supply chain bottlenecks.

His comments came after figures last week showed headline consumer price increases in the US topped 5 per cent for the fourth consecutive month. Minutes of the Federal Reserve’s latest meeting also indicated that the world’s most influential central bank may start reducing its $120bn-a-month of crisis-era bond purchases in November.

Brent crude, the international oil benchmark, added 0.8 per cent on Monday to a fresh three-year high of $85.54 a barrel as energy traders shrugged off China’s slowdown to focus on an ongoing gas shortage.

The Fed will also on Wednesday release its Beige Book update of the state of the US economy, which may cement expectations around the timing of the first pandemic-era US interest rate rise. Futures markets have priced this in for next September.

In debt markets, short-dated Treasury yields that track expectations of future interest rates in the US rose to their highest level since the coronavirus-induced market rout of March 2020.

The yield on the two-year note, which moves inversely to the price of the bond, added a 0.01 percentage point to 0.415 per cent, having climbed from just over 0.2 per cent a month ago. It had not reached this level since days after the Fed pulled borrowing costs down to zero to ease lending conditions as coronavirus swept across western nations.

The yield on the benchmark 10-year Treasury, which influences borrowing costs worldwide, added 0.02 percentage points to 1.595 per cent. The equivalent German yield rose by the same amount to minus 0.148 per cent.

Joachim Klement, strategist at Liberum, said the end of the Fed’s monthly Treasury purchases would add “about 54 basis points” to the 10-year yield. “The Fed is such a massive demand factor in bond markets,” he added.

The dollar index, which measures the US currency against six others, rose 0.2 per cent to trade close to its highest level of the last year.

In Asia, mainland China’s CSI 300 share index dropped 1.2 per cent after the GDP data were released. Hong Kong’s Hang Seng index fell 0.4 per cent and the Topix in Tokyo drifted 0.2 per cent lower.

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