Europe open: Shares lower as RBA hikes rates
European shares opened lower on Tuesday as a rate hike in Australia and worries about a US recession unsettled investors.
The benchmark Stoxx 600 index was down 0.05% in early deals, with all major regional bourses lower.
Australia’s central bank lifted its interest rate by another quarter percentage point to 4.1%, a level not seen since early 2012.
The Reserve Bank of Australia said the increase, which also lifted rates in May, was in response to recent data suggesting upside risks to inflation have picked up. It warned that some further tightening of monetary policy may be required.
While goods price inflation is slowing, RBA governor Philip Lowe pointed out that services price inflation is still very high and is proving to be very persistent overseas.
“Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range.
In the US, data overnight showed the domestic services sector barely grew in May as new orders slowed, suggesting prices were softening and bolstering the case for a pause in US rate rises.
“While signs of further slowing in activity is not great news for the US economy overall, it’s music to the ears of Federal Reserve policymakers who are anxious for signs that inflation is responding to monetary tightening,” said Hargreaves Lansdown analyst Susannah Streeter.
“As the world’s largest economy shows more signs of heading for a contraction, with growth in the mighty services sector slowing more quickly than expected last month, worries are rising about the knock-on effect around the world,”
“It’s helped erase crude oil gains, with the effects of Saudi Arabia’s production cut drowned out in the noise about slowing demand.”
In the UK, data from the British Retail Consortium on Tuesday showed British retail sales growth slowing to a seven-month low in May as soaring food prices prompted shoppers to rein in spending on non-essential items.
Reporting by Frank Prenesti for Sharecast.com