European stock markets endured a tough session not seen since the banking turmoil in March. The Eurostoxx index slid by nearly 3 percent, while the Dax fell as much as 2.57 percent. In the same vein, the CAC 40 dropped up to 3.13 percent, London’s FTSE slipped about 2.17 percent, and the Milan and Frankfurt exchanges recorded declines around 2.5 percent. The Ibex 35 finished the day down 2.12 percent, taking the index to 9,285 points, marking its most challenging session since mid-March as U.S. lenders including Silicon Valley Bank faced insolvency. Investors also weighed the resilience of the U.S. job market against a Federal Reserve minutes release suggesting further rate hikes could come, fueling concerns about higher money costs. China’s upcoming services data also underwhelmed expectations, and the People’s Bank of China has kept the yuan supported in recent weeks, signaling continued global growth headwinds.
From the opening, European markets showed signs of stabilization after a morning of losses near 1 percent. The session closed with a tougher tone as the last Federal Reserve policy meeting in the United States indicated that rate hikes had been paused at 5-5.25 percent, with a clear majority of participants viewing the current target range as an appropriate stance to curb inflation.
The central issue, however, lies in the strength of the U.S. macro data seen at the start of trading in New York. ADP data for June pointed to the creation of nearly half a million new jobs, significantly above expectations. The services sector also posted a solid advance in the same month, reinforcing the picture of a robust U.S. labor market.
Following this data, Wall Street opened with more than a 1 percent gain, while the Dow Jones, which had begun the day down around 1.4 percent in Europe, saw renewed momentum as investors weighed the chances of the Fed maintaining a higher-rate stance for longer.
The downward trend reverberated across European indices, amplifying losses in Spain and across the continent and intensifying the declines that began in the morning. By late morning, the mood had darkened, culminating in the sharpest declines since mid-March of the previous year.
On the eurozone macro front, retail sales for May in the euro area held steady on a monthly basis, yet remained down 2.9 percent year over year compared to the same month last year.
In Spain, the Public Treasury conducted a mid-to-long term debt auction for 7,028.55 million euros, clustering in the expected mid-to-high range and offering higher yields with near-50-year maturities. The data, published by the Bank of Spain, reflected investors’ appetite for longer-dated paper amid a high-rate environment.
At the close for the Ibex 35, the steepest declines were posted by IAG, down 4.14 percent; Colonial Estate, down 4.1 percent; Merlin Properties, down 4.07 percent; and Inditex, down 3.89 percent. In contrast, Banco Santander and Repsol traded lower by 3.08 percent and 2.24 percent respectively, while BBVA finished the day down 1.7 percent. Indra, however, rose 0.51 percent.
As trading ended in Europe, Brent crude settled lower by about 1.3 percent at $75.66 per barrel, and U.S. crude touched roughly $70.91 per barrel after a 1.25 percent drop.
In the foreign exchange arena, the euro traded near $1.0868 against the dollar, while the yield on Spain’s 10-year government bond rose to about 3.692 percent after several basis points of upward move in the outlook for higher rates. The risk premium over German Bunds widened to around 107 basis points.