Euro zone bonds rebound after weaker-than-expected business survey

European shares traded lower on Thursday and government bonds rose after weak business activity surveys added to concerns about the economic outlook.

The Stoxx Europe 600 in London was down 0.5% by early afternoon, while Britain’s FTSE 100 was down 0.4%. In the futures market, contracts tracking Wall Street’s S&P 500 rose 0.4%, after the index closed down 0.1% on Wednesday. Contracts tracking the tech-heavy Nasdaq 100 gained 0.5%.

On Thursday, S&P Global’s survey of euro zone business activity showed a reading of 51.9 in June, below the consensus estimate of 54 in a Reuters poll. A country-specific composite survey for Germany, which covers services and manufacturing, came in at 51.3, below expectations for a reading of 53.1. Any number above 50 indicates expansion.

“Excluding the pandemic lockdown month, the slowdown in June [for the eurozone] It’s the most abrupt on record since the depths of the global financial crisis in November 2008,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

In the government bond market, Germany’s 10-year bond yield fell 0.18 percent to 1.45 percent as investors bought into assets generally considered less risky. The yield on the 10-year U.S. Treasury note, seen as a proxy for global borrowing costs, fell 0.05 percentage point to 3.1 percent. Bond yields fall as prices rise.

On Wednesday, Federal Reserve Chairman Jay Powell said in two days of congressional testimony that a recession is “it’s definitely possible“, although he believes the world’s largest economy is resilient enough to withstand tougher monetary policy.

Oil prices fell 0.3% to just over $111 a barrel on Thursday, extending the previous day’s larger losses.

Kit Juckes, global fixed income strategist at Societe Generale, said consumer demand remained strong despite central banks raising interest rates, though he said the market would not become clear until after the summer. “Everything was as clear as mud,” he said. “No matter how much you raise rates now, demand is going to be hot this summer, and then it may cool down, or it may continue; we’ll have to see.”

Thursday’s moves in stock and bond markets also came as Norges Bank joined a wave of central banks aggressively raising interest rates to fight inflation, raising borrowing costs by half a percentage point to 1.25 percent for the first time since July 2002. Norway then hiked rates The Federal Reserve last week raised rates by 0.75 percentage points, the largest increase since 1994.

The Bank of England and the Swiss National Bank also raised rates last week, while the European Central Bank clarified plans to raise rates next month for the first time in more than a decade.

Erica Dalstø, chief Norway strategist at Scandinavian bank SEB, said hawkish moves by other central banks had caused Norges Bank to deviate from its guidance. “It’s clear that Norges Bank is so concerned about inflation risks that they stop mentioning the risks to households.”

In Asia, Hong Kong’s Hang Seng rose 1.3%, while Japan’s Topix was flat.

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