European stock markets fell on Wednesday as investors became cautious before the release of US employment data, which may force the Fed to reduce its monetary stimulus measures during the pandemic.
The Stoxx Europe 600 Index fell 0.4%, although it continued to rise by about 1.5% in June. The futures market hinted that Wall Street’s S&P 500 Index and the technology-focused Nasdaq Composite Index will be flat at the opening of New York.
European stock indexes have not fallen since January, and they traded near historical highs along with Wall Street stock markets throughout June. But analysts said that the Fed’s next move may be more important than the upcoming quarterly earnings report.
According to Citi’s research, since January, analysts have raised their 2021 earnings per share forecasts for global companies by 15%. Citigroup found that companies in the United States and Europe whose wealth is related to the economic cycle, such as industrial groups and material manufacturers, have the largest increase in their earnings forecasts.
However, Tatjana Greil Castro, co-head of public markets at Muzinich & Co, said that this optimism has pushed up the prices of the company’s stocks and debt instruments to the point that “there is no value everywhere.”
“So now everything has to do with the Fed and how much liquidity they will continue to inject into the market,” she added.
According to the monetary stimulus plan, the Federal Reserve has purchased US$120 billion of bonds every month since March last year. The plan raised the price of government debt and lowered its interest yield.This makes the stock relatively more attractive and reduces Real interest rate, Allowing companies to borrow money cheaper.
Friday’s non-farm payrolls report is expected to show that US employers added nearly 700,000 jobs in June, compared with 559,000 in the previous month.
The U.S. Central Bank has broadly pledged to keep monetary policy accommodative until the labor market recovers from last year’s economic shock, although some of the bank’s policymakers have since expressed their belief that this is nearing completion.
On Tuesday, Fed Governor Christopher Waller told Bloomberg Television, “We are now at a different stage of economic policy, so it is appropriate to start thinking about withdrawing some of the stimulus measures.”
On Wednesday, the market also began to be wary of the intensified spread of the Delta variant of Covid-19 in Europe. Spain’s Ibex 35 index fell 0.8% because investors restricted exposure to companies in this tourism-dependent country, while Italy’s FTSE MIB index fell 0.7%.
The U.S. dollar index, which measures the U.S. dollar against major currencies, remained near the highest level since the beginning of April. The euro fell more than 2% against the dollar this month, down 0.1% to 1.188 US dollars.
The prices of other safe-haven assets also strengthened. The yield on the benchmark 10-year US Treasury note fell 0.02 percentage points to 1.459%. The yield on the German equivalent of German government bonds fell 0.02 percentage points to minus 0.190%.
Barclays’ European equity strategists wrote in a research report that although the Delta variant is “a problem”, if the strong employment data raises expectations of the Federal Reserve’s interest rate hike, a “key tail risk” for stock market investors It is the rise in bond yields.
“The risk is… Investors worry that the Fed is lagging behind the trend and begin to digest future tightening policies,” they wrote.
The international oil benchmark Brent crude oil rose 0.9% to US$75.40 per barrel.