Europe close: Shares lower on EZ PMI, BoE rate hike, US bonds

(Sharecast News) - European shares closed lower on Thursday, as investors fretted about higher US bond yields and payroll data, while they also digested the latest rate hike by the Bank of England. The pan-European STOXX 600 index was down 0.72% with all major bourses lower. Britain's FTSE was down 0.83% after the BoE lifted rates for the 14th consecutive time to 5.25% from 5%, adding to pressure on borrowers and mortgage-holders, with the bank's Monetary Policy Committee warning on wage rises.

However, Shore Capital analyst Clive Black hit back at the theory of a wage-price spiral driving UK inflation.

"The composition of the MPC does not include people who employ chefs, lettuce pickers, janitors, or accountants. Rather, it is full of folks who have worked in The Treasury, US investment banks, the London School of Economics and studied at Oxford, Imperial, or Ivy League schools," he wrote in a note to clients.

"The recent appointment of the Bank's Deputy (Sarah Breeden) from within perpetuates this detachment and group think. Such detachment from reality is displayed in the pitiful misunderstanding of the UK labour market of recent years, which has been a contributory factor behind erroneous monetary policy."

"With UK wages now chasing inflation, the bank is correct to suggest, to us, that CPI will be higher for longer. The gaffer's (Governor Andrew Bailey) call for wage moderation, however, further display its disconnectedness."

In economic news, eurozone business activity stagnated more than initial estimates last month as the services sector also slowed along with the already-troubled manufacturing industry, a survey showed on Thursday.

The S&P final composite purchasing managers' index (PMI) fell to an eight-month low of 48.6 in July from June's 49.9 and fash estimate of 48.9. A mark of 50 separates growth from contraction.

"The slump in activity is driven by manufacturing, but services activity growth has cooled off too, scaling back the support to the economy as a whole."

Elsewhere, US bonds yields hit nine-month peaks following strong private jobs data and refunding announcement of Washington's maturing debt.

"Much of the weakness originated in the Treasuries markets, where prices have slipped, and yields risen quite notably in the last few days," said Steve Clayton, head of equity funds at Hargreaves Lansdown.

"Treasuries were hit by payroll data suggesting the US economy is still adding substantial numbers of new jobs, raising concerns that the Federal Reserve may have to go further with rate increases, despite having already delivered the largest, fastest hiking cycle in decades. The yield on US 10-year Treasuries is now pushing toward 4.15% which is within a whisker off its 15-year high level."

In equity news, Infineon fell 8.5% after the chipmaker forecast a decline in fourth-quarter revenue.

London Stock Exchange Group was lower after first-half results, while budget airline Wizz Air slumped after lowering first-half capacity forecasts, despite swinging to a first-quarter profit.

Moving against the trend were France's third-largest bank Societe Generale and and Dutch peer ING, which both rose after reporting better-than-expected quarterly earnings.

Anheuser-Busch InBev climbed after higher-than-expected second-quarter earnings, while recruitment firm Adecco surged also on upbeat earnings.

Reporting by Frank Prenesti for Sharecast.com