European equities fall as the prospect of interest rate rises outweighs Macron’s victory

European equities fell as the relief in a decisive victory for Emmanuel Macron in France’s presidential election was overshadowed by concerns about rising interest rates and the effects of rising inflation on corporate earnings.

Europe’s regional Stoxx 600 stock index fell 1.7 percent in early trading with similar declines for France’s CAC 40, Germany’s Xetra Dax and London’s FTSE 100. Chinese stocks fell sharply as the renminbi lost further ground against the dollar as traders reacted to the a hard shutdown in the country’s capital.

The US S&P 500 stock index recorded its biggest one-day loss since March on Friday, when traders expected central banks on both sides of the Atlantic to raise interest rates to curb inflation. The 2.8 percent drop in the benchmark stock gauge came the day after Federal Reserve Chairman Jay Powell said a 0.5 percentage point rise in interest rates was “on the table” in an attempt to combat rising inflation.

“With the French election tail risk out of the way now, the narrative for EU markets should be mainly about [European Central Bank] political outlook, ”said Emmanuel Cau, Barclays’ head of European equities strategy.

Swaps markets predict that the ECB will raise its primary deposit rate in July, which would be its first rise since 2011, before raising it to above zero in October, which would explain a significant shift away from ultra-loose monetary policy in the euro area.

The dollar index, which measures the U.S. currency against six others, including the euro and yen, rose 0.5 percent to its highest point since late March 2020, bolstered by currency traders’ expectations of price increases and stock sales, which boosted demand for reserve means of payment. The euro fell 0.6 percent against the dollar to $ 1.07. Sterling lost 0.7 percent to $ 1.27.

Later in the week, euro area inflation data is expected to show that the annual pace of consumer price increases in the euro area remained at a record high of 7.4 percent last month. US Big Tech groups Amazon, Facebook owner Meta and Apple are also announcing quarterly revenue, after streaming group Netflix shocked investors last week by reporting that they lost subscribers for the first time in a decade.

In Asia, China’s CSI 300 stock index fell 4.9 percent as panic gripped Beijing, where residents are equipped for social restrictions similar to those implemented in Shanghai. Hong Kong’s Hang Seng index lost 3.9 percent and Japan’s Nikkei 225 fell 1.9 percent.

China’s currency also lost ground, falling 0.8 percent against the dollar to Rm6.5458, lowering it by about 3 percent this year. The renminbi marked its biggest weekly fall against the dollar in three years last week as the country’s deteriorating economic outlook and rising yields on US debt undermined the attraction of Chinese assets.

Potential further lockdowns in China also weighed on oil prices, with international benchmark Brent oil falling 3.7 percent to $ 102.72 per barrel. barrel in trade in Asia. West Texas Intermediate, the US marker, fell 3.6 percent to $ 98.48.

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