Europe’s Stoxx 600 near three-week low as inflation worries weigh

EUROPEAN shares edged down to nearly a three-week low on Wednesday (Aug 19), as firmer oil prices and concerns over rising inflation offset relief from easing bond yields after the US Treasury announced more liquidity support for longer-dated debt.

Euro zone bond yields slipped after the US Treasury said it would double the size of liquidity support for long-term debt. Global bond yields had reached multi-year highs on Tuesday, unsettling investors and leading to a sell-off in risk assets.

Germany’s 30-year benchmark yield eased at least 1 basis point, while the 10-year bond yield was little changed. Long-end sovereign yields act as an anchor for the price of nearly every other asset in financial markets, including mortgage rates.

The move did little to improve risk sentiment, with inflationary pressures very much present for the energy-dependent Europe and dimming the prospects for its economic outlook.

“With oil above US$90 a barrel, the inflationary concerns are lingering, the fiscal concerns regarding ballooning US debt is still there,” said Fiona Cincotta, senior market analyst at City Index.

Shipping slowed through the Strait of Hormuz - a crucial route for global energy supplies, data showed on Wednesday, as the US and Iran made competing claims over whether the waterway was open.

The pan-European Stoxx 600 closed 0.11 per cent lower at 651.16 points.

The aerospace and defence sector led losses with a 1.6 per cent drop, while European banks slipped 1.5 per cent.

“There are several headwinds that banks are facing... the latest developments surrounding the yields, concerns over the economic outlook for the European economy and what that might mean for households and businesses as far as increased chances of a rate hike from the ECB,” added Cincotta.

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Traders in money markets are pricing in a 50-basis-point rate hike from the European Central Bank this year, according to LSEG data.

Limiting declines, basic resources shares gained 3.3 per cent, tracking precious metal prices, while healthcare shares also rose 1.4 per cent.

Earning seasons nearing end

While companies on the Stoxx 600 benchmark are now expected to report earnings growth of 24.1 per cent, up from last week’s 23.4 per cent estimate, according to LSEG I/B/E/S data, attention turns back to energy prices.

Euro zone consumer price inflation rose to 0.2 per cent in July, in line with expectations.

Meanwhile, in Britain, consumer price inflation rose to 2.9 per cent in July from a 15-month low of 2.6 per cent in June, data from the Office for National Statistics showed, reflecting a 13 per cent increase in the energy price cap set by regulator Ofgem last month.

The Federal Reserve’s July meeting minutes, due later in the day, could provide investors fresh clues on the outlook for interest rates.

Among individual movers, FLSmidth & Co rose 6.3 per cent after the Danish industrial firm reported second-quarter revenue above analysts’ estimates.

Rockwool slipped 5 per cent after the Danish mineral wool maker raised its 2026 revenue outlook but fell short of investors’ expectations. REUTERS