Europe: Shares hit by rate rise concerns

EUROPEAN shares slipped on Tuesday after strong economic data fuelled expectations of higher interest rates, while London-listed HSBC rallied on a quarterly profit surge.

The continent-wide Stoxx 600 index dipped 0.2 per cent after data showed French and German economic activity moved back into growth territory, while buoyant euro zone services figures indicated a recovery in business activity had gathered steam.

The rate-sensitive technology index fell 1.5 per cent.

Euro zone short-dated bond yields rose to their highest levels in more than a decade, tracking a jump in their US peers as business activity in the world’s largest economy unexpectedly rebounded in February.

“Inflation readings have come down, but there are signs that core inflation and services inflation are proving sticky,” said AJ Bell investment director Russ Mould.

Goldman Sachs said it was expecting the European Central Bank to raise interest rates three times this year, taking the terminal rate to 3.5 per cent from 3.25 per cent estimated earlier.

Investors are now focusing on the release of minutes on Wednesday from the US Federal Reserve’s last meeting, which will come as hotter-than-expected US inflation data added to worries that aggressive rate hikes have not yet cooled prices to the central bank’s satisfaction.

“Since the last FOMC meeting, we’ve had some pretty strong numbers coming out of the US and this is already raising concerns about whether inflation is proving more sticky,” said Stuart Cole, head macro economist at Equiti Capital.

Shares in HSBC, Europe’s biggest bank, rose 4.3 per cent after reporting a 92 per cent surge in quarterly profit and pledging more regular dividends and share buybacks.

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The banking index rose 0.8 per cent to briefly hit its highest level since July 2018.

Engie shares rose 4.8 per cent after reporting a sharp increase in profit for 2022, due to higher natural gas and power prices after Russia’s invasion of Ukraine.

Engie lifted the European utilities sector index by 0.7 per cent and was the top gainer for the day.

European stocks have had a recent bounce, with the Stoxx 600 up more than 9.2 per cent on better weather conditions, an improving economic outlook and a boost from China’s reopening.

Smith+Nephew shares jumped 4.2 per cent after the British medical products maker forecast positive annual revenue growth.

French IT consulting group Capgemini dipped 2.8 per cent after forecasting slower 2023 revenue growth on slowing demand for its cloud, data and artificial intelligence services. REUTERS