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European and Asian stocks retreated on Tuesday as investors adjusted to the prospect that interest rates will remain higher for longer to curb global price growth.
In Europe, the Stoxx Europe 600 index fell 0.5%, falling for the fourth consecutive day, France’s Cac 40 index fell 0.8%, and Germany’s Dax index fell 0.7%.
In Asia, Hong Kong’s Hang Seng Index fell 1.5%, while China’s CSI 300 Index and Japan’s Topix Index both fell 0.6%.
Government bond yields in the United States and Europe stabilized after hitting multi-year highs over the past week, as hawkish central bankers said borrowing costs would remain elevated for longer than markets expected.
The benchmark 10-year U.S. Treasury yield fell 0.03 percentage point to 4.51%, still close to the high since 2007 hit a day earlier. The 30-year bond yield fell 0.03 percentage points to 4.63%.
The European regional benchmark 10-year German Bund yield fell 0.01 percentage point to 2.78% on Tuesday, still close to its highest level since 2011.
“We have long believed that equities are pricing in too aggressive a combination of interest rate cuts and strong economic growth,” said Mark Highfill, chief investment officer at UBS Global Wealth Management.
“But the impending end of rate hikes and the prospect of slower growth as rates remain elevated for a longer period supports our preference for fixed income.”
Contracts tracking Wall Street’s benchmark S&P 500 index and those tracking the tech-heavy Nasdaq 100 index fell 0.4% before the New York open.
Investors turned their attention to preliminary inflation data due later this week, which is expected to show the 20-nation annual consumer price index fell to 4.5% in September from 5.2% in August.
European Central Bank President Christine Lagarde reiterated in a speech on Monday that even if economic activity starts to slow down, interest rates in the euro zone will be kept high as long as necessary to bring inflation back to the 2% target.
Last week, the European Central Bank raised its benchmark deposit rate by 0.25 percentage points to a record high of 4%, which may be the last round of tightening policy this cycle.
Oil prices have risen nearly 30% since June as some of the world’s leading fossil fuel producers announced a series of supply cuts that will last until the end of the year, fueling concerns about inflation.
International oil benchmark Brent crude fell 0.7% to $92.62 on Tuesday, while U.S. West Texas Intermediate crude fell 0.8% to $89.01.
Carsten Brzeski, global head of macro at ING, said: “The recent surge in oil prices will complicate matters further as it will both exacerbate the economic slowdown and push up inflation. “Balancing growth and inflation will become more difficult.”
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