European Markets Drop to 6-week Low, Bond Yields at 8-year High

Bridgette Randall
01 Sep, 2022
Frankfurt

European markets declined on the first day of September and all major indexes in the region fell as investors debated the direction of interest rates and health of the economy. 

Moreover, market sentiment was dented by additional lockdown and a contraction in Chinese factory activities. 

After a sustained campaign by central bankers in the last five days, investors are betting that the next rate hike at the policymakers' meeting on Sept 8 could be as large as 75 basis points.

Bond yield across the euro zone rose ahead of the rate setting committee's meeting next week. 

The German Bund yields rose to 1.57%, the U.K. bonds inched closer to 2.9%, and Italian bonds nearly touched 3.94%. 

The bond yields in the euro zone rose to the levels last seen in 2014. 

Commodities and energy prices inched lower on the worries that the demand from China may remain soft on the ongoing lockdown and weakening factory activities. 

Brent crude oil declined $3.43 to $92.21 a barrel and natural gas futures increased 1.3% to 243.0 euros per megawatt hour. 

The DAX index fell 1.6% to 12,160.23, the CAC-40 index dropped 1.5% to 6,034.12, and the FTSE 100 index fell 1.9% to 7,148.50. 

Mining companies led the decliners in London trading after gold, silver and copper fell between 1% and 3% after weak Chinese data. 

Anglo American, Antofagasta, and Glencore declined between 4% and 6%. 

Rio Tinto plc declined 3.6% to 4,600 pence in London trading after it agreed to acquire Turquoise Hill Resources for $3.3 billion. 

Reckitt Benckiser Group declined 4.9% to 6,323.55 pence after the company said its chief executive officer Laxman Narasimhan has decided to leave the company for personal reasons. 

Later in the day, Starbucks announced the appointment of Narasimhan as its new chief executive from April 1, 2023. 

Deutsche Lufthansa AG declined 3.2% to 5.75 euros after the pilots union announced a one-day strike on September 2 following a ground staff strike in July. 

Pernod Ricard increased 0.5% to 184.40 euros after the spirits group reported its annual results. 

Organic sales in the fiscal year fourth quarter ending in June increased 14% to 2.3 billion euros and fiscal year 2022 sales rose 17% to 10.7 billion euros. 

The company proposed to increase dividend 32% to 4.12 euros in the fiscal year 2022. 

The spirit group also guided  capital expenditure to increase 7% in the fiscal 2023 and proposed to buyback between 500 million and 750 million of its stocks. 

Hermes declined 2.5% to 1,250 euros and LVMH dropped 2.3% to 632.80 euros on the worries of a slowdown in China.