European shares hit by tech jitters; pound awaits BoE decision
European shares slipped on Thursday, having pulled away from Asia and Wall Street this week, while the pound edged up from an overnight low as traders weighed the possibility of an earlier rate cut later.
Major Asian markets have made solid gains overnight [.T][.SS] while investors there are coming back in after a sharp sell-off fueled by the tech sector this week, but for Europe, it’s mostly working.
The pan-European STOXX 600 lost 0.3% as an 11% slump in shares of French data center equipment company Legrand added to recent concerns over high-tech valuations and Germany’s Commerzbank weighed on the banking sector. (EU)
In currency markets, the dollar hovered just below a multi-month high after some upbeat US data on Wednesday and as traders await the day’s main business – the BoE interest rate decision at 1200 GMT (1200 GMT).
Sterling was up 0.3% at $1.3080 after edging up from a seven-month low of $1.3011 overnight. [GBP/] Investors now see the chance of a 40% rate cut, and Chancellor of the Exchequer Rachel Reeves this week signaled a UK tax hike at the end of this month.
“I think of all the G7 central banks, the Bank of England is in the most difficult position,” said Allspring multi-asset portfolio manager Rushabh Amin, explaining that he expected the BoE to delay cuts until after Reeves’ budget on November 26.
“We are somewhat underweight (on sterling) in the budget” he added, although this could be readjusted in the coming weeks. “I think the base case is just higher volatility.”
BOND MARKET MOVEMENTS
In bond markets, gold yields – which represent the UK government’s borrowing costs – were little changed at 4.47%, while German bond yields fell from a 4-week high.
U.S. Treasury yields largely held onto overnight gains as traders continued to scale back speculation of a Federal Reserve interest rate cut next month, something that has pushed the dollar to its highest level in five months.
Data on Wednesday showed US service sector activity rose to its highest level in eight months in October as new orders grew strongly, while private payrolls rose 42,000 last month, beating expectations.
“We’re actually not too worried about the job market,” said Keiko Kondo, head of multi-asset investment for Asia at Schroders.
“The market is tight, companies are probably investing more in technology, maybe not necessarily hiring more people, but not laying people off either. So maybe the way the economy and the labor market operates is changing a little bit.”
WATCH THE FUTURE
Wall Street futures showed a steady start as investors remained focused on trade tariffs and the ongoing government shutdown. [.N]
On tariffs, a US Supreme Court justice on Wednesday expressed doubt over the legality of President Donald Trump’s massive tariffs, in a case that has implications for the global economy and is a major test of Trump’s power.
Japan’s Nikkei rebounded 1.4% in Asia after slumping 2.5% on Wednesday.
Hong Kong’s Hang Seng rose 2.1%. South Korea’s Kospi also jumped more than 2% shortly after opening but then lost traction to end 0.8% higher after falling 2.85% in the previous session.
In China, the benchmark Shanghai stock index returned to the psychologically important level of 4,000, as optimism about technological self-sufficiency boosted shares related to semiconductors and artificial intelligence.
“We see the potential for a broadening of this rally,” said Daniel Blake, Asia equity and emerging markets strategist at Morgan Stanley, referring to the rally in Chinese markets led by technology companies.
However, Allspring’s Amin says this is one market they are considering taking profits from after this year’s rally.
The 10-year US Treasury yield was last at 4.1473%, after rising nearly seven basis points in the previous session, while the two-year bond yield was at 3.6213%.
Wednesday’s release of upbeat US economic data has caused traders to now price in around a 61% chance of the Fed cutting interest rates in December, down from around 70% at the start of the week.
Against the yen, the dollar fell 0.3% in European trade to 153.70. The euro was up 0.2% at $1.1515.
In commodities, oil prices edged up, with Brent crude futures rising 0.6% to $63.95 a barrel [O/R] while gold rose 0.7% back above $4,000 an ounce.
“The odds of a Fed rate cut in December are diminishing,” said Jose Torres, senior economist at Interactive Brokers.
Source: Reuters
