European stocks edged lower for the fifth straight day on Tuesday as higher government bond yields, investors’ fears over a potential recession, and the impact on business profits from higher interest rates weighed on the market.
The pan-European STOXX 600 index declined 1.1% and has dropped 20.4% year-to-date amid concerns about the region’s hard winter due to an energy crisis driven by the Russia-Ukraine war and central banks’ aggressive rate hikes that may hinder economic growth.
Europe’s Growth Woes
Longer-term US Treasury yields rose in Asia, as bonds worldwide were struck by a swift retreat of UK gilts amid concerns over pensions funds being pressed to conduct a fire sale of assets.
The Bank of England (BoE) on Tuesday announced its plans to buy inflation-linked debt until the end of this week to stop a steep selloff in Britain’s £2.1-trillion ($2.31 trillion) government bond market.
Starting today, the BoE said it would purchase £5 billion ($5.51 billion) of index-linked debt daily. The FTSE 100 index lost 1.2%.
Further raising BoE’s inflation worries, the UK’s unemployment rate fell by 3.5% in the three months to August, its lowest level since 1974, as the number of people leaving the workforce and not looking for a job climbed to a record high.
The Office for National Statistics (ONS) reported that the number of inactive people was up 252,000 from the three months to May, the largest surge since records started in 1971.
Analyst Richard Hunter said the data might provide the BoE more reason to continue with its policy of aggressive interest rate hikes, which could complicate an overall outlook where the economy is expected to enter recessionary levels sooner rather than later.
Focus now shifts to the third-quarter earnings season to assess Europe’s corporate health when inflation currently stands at a record high of 10%, and the data points to a recession.
