European equities struggled for direction on Thursday, remaining close to their lowest levels since August 3 as hawkish signals from central banks and continuing disruption to shipping in the Persian Gulf outweighed an attempted recovery in global bond markets.
The pan-European Stoxx Europe 600 Index was little changed. Further losses would put the benchmark on course for its longest run of daily declines since September 2023. Germany’s DAX slipped 0.3%, while France’s CAC 40 and London’s FTSE 100 traded broadly flat.
Hawkish Fed minutes revive interest-rate concerns
Risk appetite remained subdued after investors digested minutes from the Federal Reserve’s July policy meeting.
The minutes showed that US policymakers remained concerned about persistent inflationary pressures and were prepared to increase interest rates again if inflation continued to run above the central bank’s 2% target.
The message challenged recent expectations that the Fed could pause its tightening cycle in the autumn and revived concerns that borrowing costs across major economies may remain elevated for longer than markets had anticipated.
European investors are facing similar uncertainty over monetary policy. European Central Bank officials have previously warned that Eurozone inflation remaining around 3% is still too high, particularly given the possibility that renewed energy-price pressures could generate secondary inflationary effects.
Treasury intervention calms global bond sell-off
Thursday’s cautious trading followed a turbulent period in sovereign debt markets, during which borrowing costs climbed to multi-decade highs before intervention from US authorities helped stabilise conditions.
Earlier in the week, intensifying rhetoric surrounding the Middle East conflict and a rise in Brent crude above $91 a barrel triggered heavy selling across major government bond markets.
Germany’s benchmark 10-year Bund yield climbed to 3.22%, its highest level since 2011, while the US 30-year Treasury yield reached a 19-year peak of 5.337%. The sharp increase in risk-free yields reduced the relative attractiveness of equities and encouraged investors to move away from riskier assets.
The US Department of the Treasury responded on Wednesday by unexpectedly doubling the maximum size of its liquidity-supporting buybacks for long-dated nominal debt from $2 billion to at least $4 billion per operation.
The intervention helped halt the surge in yields and improve conditions in the secondary bond market. However, the subsequently released hawkish Fed minutes quickly returned investor attention to the possibility of persistently high global interest rates.
Strait of Hormuz disruption keeps inflation risks elevated
Shipping data also continues to add to market uncertainty, with commercial traffic through the Strait of Hormuz substantially reduced as many international shipowners avoid the strategically important waterway amid security concerns surrounding the conflict with Iran.
Tanker movements remain well below historical averages, while Brent crude continues to trade near multi-week highs.
Investors are concerned that prolonged disruption to energy supplies could increase costs throughout European supply chains, reinforcing inflationary pressures at a time when economic growth is already vulnerable. Such a combination could leave regional equities exposed to further stagflation concerns.
Arcadis gains while Aegon and Novonesis move after results
Among individual stocks, Arcadis (EU:ARCAD) gained 2% after WSP Global said it would pursue a takeover offer for the company.
Aegon (EU:AGN) dropped almost 4% following the release of its first-half results.
Novonesis (TG:NZM2) moved sharply in the opposite direction, jumping 9% after its second-quarter revenue exceeded market expectations.
Focus keyphrase: European shares central bank outlook
Meta description: European shares hover near August lows as hawkish Fed signals, elevated bond yields and disruption around the Strait of Hormuz weigh on sentiment.
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