European Shares Down As Downbeat Sentiment Prevails

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European Shares Down As Downbeat Sentiment Prevails

STOXX 600 Down By 0.4% As Downbeat Sentiment Prevails

Thursday's session marks the 7th day in a row that the European shares continue to trade lower. In fact, such a losing streak was not seen in the last 5 years, highlighting the issue's severity.

The reason behind this downbeat performance of most European shares can be attributed to the high US interest rates and the slowdown in the European economy. Considering the role of the US in driving global demand, it makes sense for the US interest rate policy to have a global effect.

Rising US Bond Yields Sent The EU Shares Lower

The STOXX 600 index, which tracks the top European shares, shed 0.4% of its value and ended up hitting its weekly low. And if we look at the weekly losing streak, such a poor performance was only seen during February 2018.

The stocks that are sensitive to the interest rate were the ones that dropped the most! The bulk of these shares dropped by 1% as the yields on the US T-bonds surged higher after the positive services PMI data.

On one hand, the services PMI data confirmed the presence of high inflation. On the other hand, it also meant higher interest rates were not going anywhere. As a result of this outcome, the securities from the European Union turned lower as it directly implies weak US demand.

Looking ahead, we will see the meetings of the US Fed and the ECB about the monetary policy decision in a week or two. These meetings will provide a fresh outlook on what's expected from both of these central banks and where the interest rates will go from here.

If we look at the European side, the industrial production of Germany decreased a little more than what the market was expecting during July. So that's yet another point which supports the downbeat sentiment surrounding the EU shares.

However, the EU stocks will likely pick up steam once the upcoming central bank meetings are over. As for the direction, that will greatly depend on whether the high-interest rates will stay for longer or not.

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