Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
European stocks fell on Tuesday amid a global sell-off as hopes of rapid US interest rate cuts wane and fears grow over the potential for conflict in the Middle East to widen.
The region-wide Stoxx Europe 600 dropped 1.4 per cent, with particularly steep declines for industrials and miners. France’s Cac 40 also fell 1.4 per cent, as did London’s FTSE 100, while Germany’s Dax dropped 1.5 per cent.
European markets are tracking Wall Street lower after unexpectedly strong US retail sales figures on Monday hit stocks and suggested that the world’s largest economy may be running too hot to justify deep cuts to borrowing costs.
Inflation risks will be central to discussions among policymakers as the World Bank and IMF begin their spring meetings in Washington, particularly after large rises in commodity prices in recent weeks amid fears of supply disruption sparked by conflict between Israel and Iran.
Traders had already slashed their bets on interest rate cuts by the US Federal Reserve last week after official data showed a 3.5 per cent increase in consumer prices for the year to March, up from 3.2 per cent in February and above expectations.
“This is basically forcing the equity market to wake up to the reality of less Fed cuts,” said Emmanuel Cau, a strategist at Barclays.
Asian markets also declined. Hong Kong’s Hang Seng slipped 2.1 per cent, China’s CSI 300 fell 1.1 per cent, South Korea’s Kospi dropped 2.3 per cent and Japan’s Topix fell 2 per cent.
The latest falls follow official figures showing that growth in China was stronger than expected in the first quarter. However, disappointments in industrial output and retail sales raised some concerns about the strength of the recovery.
Equities on both sides of the Atlantic rallied strongly in the first months of this year, buoyed by hopes of a soft economic landing in the US and enthusiasm about artificial intelligence. Even after Tuesday’s declines, Germany’s Dax and France’s Cac 40 remain 6.1 per cent and 5.3 per cent higher than at the start of 2024.
“The year-to-date performance was just too stellar to remain that way,” said Florian Ielpo, head of macro at Lombard Odier Investment Managers.
“The market is looking for an excuse to take a breather and we have the perfect storm. Geopolitical risks are leading to higher commodity prices and that’s combining with existing inflation and interest rate anxieties,” he added.
