Miners, rate-hike fears pull down European shares

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European shares were weighed down by mining stocks after metal prices dropped on Wednesday and as strong economic data sparked worries that interest rates could stay higher for longer.

The pan-European STOXX 600 index fell 0.5% in the first hour of trading. Investors are also awaiting release of the minutes of the U.S. Federal Reserve’s last meeting due later in the day.

The European basic resources sector index shed 1.5%, as miners tracked a fall in copper prices, also weighed down by concerns over the demand outlook from top consumer China.

Miners lift European shares

Data on Tuesday showed that French and German economic activity retreated into a growth territory, while a rebound in the U.S. business activity also backed views that interest rates in both economies will remain higher for longer.

“Investors are waking up to a stark realisation that the Fed’s work is not done, and that interest rates may have to be hiked even higher to cool inflation,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“High hopes that the Fed could cut rates by the end of the year have been dashed, replaced by worries that up to three hikes in quick succession may be needed to tame the price spiral.”

On Wednesday, data showed Germany’s inflation rate showed no signs of easing at the start of the year, as energy and food price pressures remained high due to the war in Ukraine.

Still, European stocks have enjoyed a bounce so far this year, relative to their U.S. peers on better weather conditions, hopes that the euro zone economy will narrowly avoid a recession and a boost from China’s reopening.

Shares of BE Semiconductor jumped 8.4% to the top of the benchmark STOXX 600 after the Dutch chipmaking equipment supplier said the recent tensions between the United States and China had not affected its sales and orders.

Stellantis rose 2.5% after the carmaker said its operating profit grew 17% in the second half of last year on a strong product and pricing mix.

Fresenius SE slid 6.1% after the German healthcare group forecast a fall in 2023 profit, partly due to plans to cede strategic control over dialysis group Fresenius Medical Care.

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