Europe midday: Rate worries continue to weigh on sentiment

European shares were lower on Wednesday as worries over interest rates continued to unsettle investors, leading to a sharp fall on US markets overnight on the back of surging treasury yields.

The pan-European Stoxx 600 index was down 0.19% with all major regional bourses lower. US equity markets all fell by more than 1% on Tuesday, with the Dow Jones Industrial Average suffering its biggest sell-off since March.

"There may be a small pause for breath on Wall Street after the steepest sell off since March, but sentiment is unlikely to improve markedly signs of deteriorating confidence, while inflation remains off target," said Hargreaves Lansdown analyst Susannah Streeter.

"This week’s data points to weakening optimism about economic prospects, with new home sales in August falling 8.7%, a bigger drop than expected. The Conference Board’s consumer confidence Index also marked up a bigger fall in sentiment than expected."

"The unfortunate collision of disappointing data and stubborn inflation is causing a bout of anxiety which doesn’t look easy to calm. 10-year US Treasury yields have been pushed to the highest levels since 2007 as investors assess the prospects that interest rates will be forced to stay higher for longer, with fewer cuts anticipated next year."

In Asia, shares in Shanghai gained as as data showed Chinese industrial profits rebounded sharply in August.

On the economic front, the German GfK consumer climate index fell to -26.5 in October, from a revised lower -25.6 the prior month, indicating that the confidence in the eurozone’s largest economy remains fragile as elevated interest rates cause people to hide money away in savings accounts.

Economists were expecting only a slight decline to -26. GfK said that a number of sub-indices were moving in the right direction – with economic expectations, income expectations and propensity to buy showing minimal increases.

However, a significant rise in the propensity to save – up 0.5 point to 8, its highest level since April 2011 – was behind the decline in the headline index. Earlier this month the European Central Bank raised interest rates to a record 4.5% as it continues to battle stubborn inflation, which stood at 5.2% in the euro area in August.

In equity news, Shares in NN Group fell more than 14% after it disagreed with an interim judgement on unit-linked insurances sold by the company.

Reporting by Frank Prenesti for Sharecast.com