Fundamental Analysis

Equities Subdued Amid Global Interest Rate Uncertainty

  • There is uncertainty regarding global interest rates.
  • Australia’s central bank kept interest rates unchanged but warned of further tightening.
  • Recent data indicated a deepening decline in Britain’s manufacturing sector in June.

On Tuesday, European equities remained stable in low-volume trading due to the absence of fresh economic data from the region and uncertainty regarding global interest rates. Investors exercised caution as they assessed hawkish signals from central bankers alongside indications of slowing global growth. 

The pan-European STOXX 600 index closed slightly higher, increasing by 0.1% and trading within a narrow two-point range throughout the day.

Central bankers at the forefront have prioritized efforts to bring inflation back to target levels, despite the slowdown in the United States and the Eurozone. This is contributing to the uncertainty surrounding future global monetary policy measures. Australia’s central bank kept interest rates unchanged during the day but reiterated their warning about the potential need for further tightening.

Analysts also emphasized that the limited availability of economic data and reduced trading volumes impacted market movements. Wall Street was closed for the US July 4 holiday. 

Meanwhile, Britain’s FTSE 100 experienced a slight decline. Concerns over a potential recession and weakness in industrial and financial stocks outweighed a rebound in healthcare stocks. 

UK manufacturing PMI (Source: S&P Global)

Anthi Tsouvali, a multi-asset strategist at State Street Global Markets, attributed the decline in industrial stocks to increased fears of a recession following the UK PMI numbers. Recent data indicated a deepening decline in Britain’s manufacturing sector in June. 

Additionally, UK banks contributed to the subdued sentiment by declining 0.7%. British finance minister Jeremy Hunt supported the financial regulator FCA’s efforts to ensure that banks offer better savings rates to consumers. Concerns surrounding a global economic slowdown and high inflation leading to more monetary policy tightening have limited the FTSE 100’s year-to-date gain to less than 1%.

On Tuesday, Canada’s primary stock index experienced an increase, reaching its highest closing level in one and a half months. Investors assessed the impact of China’s efforts to restrict chipmaking material exports. Furthermore, data indicated a more significant contraction in the country’s domestic factory sector. 

The S&P Global Canada Manufacturing Purchasing Managers’ Index declined to a seasonally adjusted 48.8 in June, down from 49.0 in May. This decrease was influenced by an uncertain economic outlook that affected domestic and foreign demand.

The released data could shape expectations concerning additional tightening measures by the Bank of Canada at next week’s interest rate decision.