On June 27, European shares faced difficulties in maintaining positive momentum, unlike Asian stocks that were boosted by China’s government announcing its support for the economy. Investors were primarily concerned about the economic outlook for Europe and the United States.
Chinese Premier Li Qiang’s statement regarding the implementation of policies to stimulate the world’s second-largest economy contributed to the positive sentiment in Asian markets. However, as European trading commenced, the pan-European STOXX 600 index experienced a 0.1% decline. The MSCI World Equity Index, on the other hand, saw a slight increase of 0.1% to reach 668.72 points for the day, following a decrease from its 14-month high of 689.04 points reached over a week ago.
Within Europe, MSCI’s Europe index showed a 0.1% increase, London’s FTSE 100 rose by 0.1%, and Germany’s DAX slightly declined by less than 0.1%. Hani Redha, a multi-asset portfolio manager at PineBridge Investments, noted that the factors that previously supported European shares, such as relief over the easing energy crisis and China’s surprising post-COVID reopening, would not have a lasting impact. Redha mentioned that the tightening of policies and the fading of these temporary tailwinds would lead to a deterioration in fundamentals, leaving the markets vulnerable.
In the United States, Wall Street experienced losses on Monday as investors increasingly anticipated that the U.S. Federal Reserve would maintain higher interest rates for a longer period. The second-in-command of the International Monetary Fund (IMF) stated that the world’s major central banks might require more time to bring inflation back to the target levels, and a new wave of financial turbulence could further prolong the process.
Regarding the eurozone, European Central Bank President Christine Lagarde remarked that inflation could persist for a considerable period, suggesting that the central bank is unlikely to end rate hikes in the near future.
Quashed Rebellion: An Attempted Mutiny Comes to an End
Analysts noted that the financial markets showed limited reaction on Tuesday to the failed mutiny led by Wagner Group mercenaries in Russia over the weekend. This incident, however, shed light on potential cracks in Russian President Vladimir Putin’s hold on power.
The focus of investors shifted towards upcoming U.S. data, expected to provide insights into the country’s fuel demand during the summer driving season, causing oil prices to dip. Wheat futures, which had initially surged to a four-month high earlier in the week, experienced a decline as profit-taking took place.
Another factor contributing to the subdued response in the markets is the timing, as the end of the month and the first half of the year approached. During this period, investors tend to make adjustments to their portfolios rather than making significant shifts in asset allocation, according to Michael Hewson, chief market analyst at CMC Markets.
The U.S. dollar saw a slight decrease of 0.1% against a basket of currencies, anticipating key data on durable goods, consumer confidence, and new home sales later in the session. Against China’s yuan, the U.S. dollar reached a seven-month high, as investors prepared for the possibility of additional measures from China to support its currency.
The euro experienced a 0.3% increase, reaching $1.09365. The German yield curve reached its most inverted state in almost 31 years, as investors speculated that a weakening economy would lead the European Central Bank to cut interest rates once they reach their peak at around 4%.
Eurozone government bond yields rose, with the benchmark German 10-year yield standing at 2.332%.
The British pound showed a 0.1% increase for the day, reaching $1.2718.
Meanwhile, the Japanese yen weakened against the U.S. dollar, reaching its lowest point since November. This decline was prompted by Japanese Finance Minister Shunichi Suzuki’s statement about observed sharp and one-sided movements in the currency market.