European shares tumble as traders head for the exits
European equities came under increasing pressure into the close, with London and European traders heading for the exits amid growing concerns over rising energy prices, higher bond yields and the economic impact of escalating tensions in the Middle East.
Brent crude moved above $100 per barrel, increasing fears that higher energy costs will keep inflation elevated while slowing economic growth. Europe remains heavily dependent on imported energy, making its economies particularly vulnerable to a sustained rise in oil prices.
The selloff also comes ahead of Thursday’s ECB interest-rate decision. The combination of higher inflation risks and uncertainty over the central bank’s next move gave investors another reason to reduce exposure.
France’s CAC 40 led the declines, while Germany’s DAX and the U.K.’s FTSE 100 were also sharply lower. Italy held up somewhat better, helped by strength in energy shares.
The provisional closing levels show:
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Germany’s DAX: -1.66% at 25,576.46
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France’s CAC 40: -1.94% at 8,156.68
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U.K.’s FTSE 100: -1.31% at 10,670.07
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Spain’s IBEX 35: -1.51% at 19,695.31
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Italy’s FTSE MIB: -0.58% at 51,875.23
Technically, Frances CAC fell below its 200 day moving average at 8239.88 increasing the selling momentum. Early in September, that moving average was tested and found support buyers, but the rise up to the 100 day moving average at 8326.58 stalled the rally on Monday and Tuesday before rotating lower in trading today. Sellers are more in control below those 2 key moving average levels.
As European traders head home, U.S. equities are also trading lower. The broader risk-off tone is being reinforced by another move higher in Treasury yields.
The major U.S. indices currently show:
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Dow Industrial Average: -411.06 points or -0.78% at 52,380.23
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S&P 500: -43.58 points or -0.57% at 7,629.95
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Nasdaq Composite: -213.09 points or -0.81% at 26,208.32
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Russell 2000: -36.58 points or -1.24% at 2,923.62
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Nasdaq 100: -140.24 points or -0.48% at 29,367.46
U.S. Treasury yields moved higher after Treasury Secretary Scott Bessent announced that Thursday’s long-dated Treasury buyback would total as much as $6 billion. Although that was above the previously indicated minimum of $4 billion, the market had been looking for something closer to $8 billion to $10 billion.
The disappointment prompted selling in Treasuries and sent yields higher. Remember, bond prices and yields move in opposite directions. When bonds are sold, their prices fall and yields rise.
The yield curve currently shows:
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2-year yield: 4.427%, up 2.9 basis points
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5-year yield: 4.618%, up 4.5 basis points
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10-year yield: 4.847%, up 4.3 basis points
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30-year yield: 5.297%, up 3.3 basis points
The Treasury will use the buyback to purchase older and less-liquid securities in the 10- to 20-year maturity sector. However, the $6 billion amount was not large enough to satisfy traders hoping for a more aggressive effort to support the bond market and contain long-term borrowing costs. Reuters
Meanwhile, commodities and Bitcoin are all trading higher:
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Crude oil futures: +$3.30 or 3.55% at $96.33
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Gold: +$45.23 or 1.04% at $4,399.83
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Silver: +$1.70 or 2.58% at $67.43
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Bitcoin: +$241 or 0.31% at $78,690
The rise in oil is adding to the inflation concerns that are pressuring both stocks and bonds. Gold and silver are benefiting from safe-haven demand, while Bitcoin is holding onto a modest gain despite the broader decline in risk assets.
The market message as Europe goes home is one of caution. Stocks are lower, bond yields are higher and hard assets are moving to the upside. That combination suggests investors are increasingly concerned about inflation, geopolitical risk and the prospect that interest rates may need to remain higher for longer.
This article was written by Greg Michalowski at investinglive.com.