Sweden, UK lead European shares lower as inflation data stokes rate-hike fears

By Shashwat Chauhan

(Reuters) – UK and Swedish stocks led declines among European peers on Tuesday after inflation data from both countries triggered worries about high interest rates, while China-exposed shares fell as Beijing’s policy support did little to boost confidence.

The pan-European index lost 0.8% touching a one-week low, while both London’s and Stockholm stocks fell over 1%.

Bond yields across Europe jumped, with UK gilts spiking after data showed basic wages in Britain surged to hit a new record growth rate.

The real estate sector, often considered a bond proxy, slid 1.6%, leading sectoral falls.

“The risk is that you might see sticky inflation on the back of this wage growth,” said Andreas Bruckner, European equity strategist at Bank of America Merrill Lynch (NYSE:).

A separate report showed the pace of inflation in Sweden held steady at 9.3% in July, still too high for the central bank, which is likely to hike its policy rate again at the upcoming meeting in September.

German 10-year bond yield hit a five-month high.

China-exposed miners fell for the fourth straight session, down 1.3% after data from the world’s second-largest economy showed retail sales, industrial output and investment growing at a slower-than-expected pace.

Even as China’s central bank cut key policy rates on Tuesday, analysts say more support is needed to revitalise growth.

“The negative China sentiment (is) coming through because Europe by nature is an open economy and its export orientation is towards China,” Bruckner said.

Luxury heavyweights LVMH, Hermes and Kering (EPA:), who have heavy exposure to China, slipped between 0.9% and 1.4%.

HSBC, Europe’s largest bank which also does business in China, fell 1.7%, weighing on the STOXX 600.

Danone SA (OTC:) fell 1.3% after Bernstein downgraded the world’s largest yoghurt maker’s stock to “underperform” from “market perform.”

The benchmark STOXX 600 has come off its over one-year highs hit in July, pressured by elevated concerns over China’s economy and sharp movements in bond yields.

Britain’s Marks & Spencer (OTC:) jumped 7.6%, rising to the top of the STOXX 600 after the retailer raised its profit outlook. The broader retail index was the only sectoral outlier, gaining 0.1%.

Pandora (OTC:) added 0.4% after the Danish jewellery maker raised its full-year revenue outlook as it reported second-quarter sales above analyst forecasts.

A survey from ZEW economic research institute showed German investor morale improved unexpectedly in August.

(This story has been refiled to add a dropped letter in analyst’s name in paragraph 5 and 10)