Economic news

European Shares Hit by Rate Rise Concerns

  • Euro zone PMI at 9-month high as services supports
  • HSBC earnings lift banking sector to 2018 highs
  • Euro zone short-dated yields hit multi-year highs after PMI
  • STOXX 600 off 0.2%, tech shares fall 1.5%

Feb 21 (Reuters) - European shares slipped on Tuesday after strong economic data fuelled expectations of higher interest rates, while London-listed HSBC rallied on a quarterly profit surge.

The continent-wide STOXX 600 index dipped 0.2% after data showed French and German economic activity moved back into growth territory, while buoyant euro zone services figures indicated a recovery in business activity had gathered steam.

The rate-sensitive technology index fell 1.5%.

Euro zone short-dated bond yields rose to their highest levels in more than a decade, tracking a jump in their U.S. peers as business activity in the world's largest economy unexpectedly rebounded in February.

"Inflation readings have come down, but there are signs that core inflation and services inflation are proving sticky," said AJ Bell investment director Russ Mould.

Goldman Sachs said it was expecting the European Central Bank to raise interest rates three times this year, taking the terminal rate to 3.5% from 3.25% estimated earlier.

Investors are now focusing on the release of minutes on Wednesday from the U.S. Federal Reserve's last meeting, which will come as hotter-than-expected U.S. inflation data added to worries that aggressive rate hikes have not yet cooled prices to the central bank's satisfaction.

"Since the last FOMC meeting, we've had some pretty strong numbers coming out of the U.S. and this is already raising concerns about whether inflation is proving more sticky," said Stuart Cole, head macro economist at Equiti Capital.

Shares in HSBC, Europe's biggest bank, rose 4.3% after reporting a 92% surge in quarterly profit and pledging more regular dividends and share buybacks.

The banking index rose 0.8% to briefly hit its highest level since July 2018.

Engie shares rose 4.8% after reporting a sharp increase in profit for 2022, due to higher natural gas and power prices after Russia's invasion of Ukraine.

Engie lifted the European utilities sector index by 0.7% and was the top gainer for the day.

European stocks have had a recent bounce, with the STOXX 600 up more than 9.2% on better weather conditions, an improving economic outlook and a boost from China's reopening.

Smith+Nephew shares jumped 4.2% after the British medical products maker forecast positive annual revenue growth.

French IT consulting group Capgemini dipped 2.8% after forecasting slower 2023 revenue growth on slowing demand for its cloud, data and artificial intelligence services.

Reporting by Shreyashi Sanyal and Bansari Mayur Kamdar in Bengaluru; Editing by Nivedita Bhattacharjee, Sherry Jacob-Phillips and Alexander Smith

Source: Reuters

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