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European equities drifted lower as investors balanced a worsening economic slowdown in China with US inflation data that reduced bets of the Federal Reserve moving closer to its first pandemic-era interest rate rise.
The region-wide Stoxx Europe 600 index fell 0.2 per cent while the UK’s FTSE 100 lost 0.1 per cent.
Data on Tuesday showed that US consumer prices rose 0.3 per cent in August from July, a sharp deceleration from the previous month-on-month increase.
Asian markets failed to respond positively, despite their sensitivity to US monetary policy. Hong Kong’s Hang Seng index dropped 1.7 per cent in its third consecutive session of falls, taking its loss for the past three months to more than 13 per cent. The CSI 300 index of mainland Chinese stocks dropped 1 per cent.
Macau, the world’s largest gambling hub, announced that it might increase supervision of its gaming industry in a move that sent casino operators’ shares tumbling as investors feared another regulatory crackdown on private business in China. The Beijing government has already placed stringent new rules on the tech sector, online gaming and private education.
China’s retail sales rose 2.5 per cent in August from the same month last year, a report on Wednesday showed, as the country dealt with outbreaks of the highly infectious Delta variant of Covid-19. Economists polled by Reuters had expected to see 7 per cent growth.
On Tuesday, debt-laden Chinese homebuilder Evergrande hired restructuring advisers to help it through a liquidity crisis after its monthly sales almost halved from June to August.
“Chinese retail sales were surprisingly weak on the back of the spread of Covid-19, holidays and likely a sense that the debt-fuelled rise of China driven in part by speculation in the real estate market is reaching an end,” said Sebastien Galy of Nordea Asset Management.
“One is faced with the fact that the global economy is decelerating somewhat faster than was expected from China to the United States and potentially in Europe.”
A Bank of America survey of 258 asset managers found that a net 13 per cent expect global economic growth to rise, the lowest amount since April 2020.
US retail sales fell by an unexpectedly sharp 1.1 per cent in July from June as consumers pulled back on spending while Delta coronavirus cases rose. Airlines have reported that demand is slowing while large employers from Microsoft to Ford have postponed plans to return workers to offices.
Oil prices were unaffected by slowdown fears, with Brent crude adding 1 per cent to $74.3 a barrel after Hurricane Ida shuttered US refineries.
The yield on the 10-year US Treasury note added 0.01 percentage points to 1.289 per cent after falling sharply on Tuesday, as traders anticipated the Fed taking more time to remove its $120bn of monthly bond purchases that have boosted markets through the pandemic. Bond yields move inversely to prices.
The UK’s 10-year gilt yield rose 0.02 percentage points to 0.76 per cent after the country’s rate of inflation jumped to an annual rate of 3.2 per cent in August. Sterling gained 0.2 per cent against the dollar to purchase $1.13836.
“The tightening of UK monetary policy is firmly on the agenda,” said Richard Woolnough, fund manager at M&G Investments, citing a worker shortage and a house price surge as well as inflation as reasons for the Bank of England to take action.