European stocks closed mixed on Tuesday, with earlier gains pared after opening weakness on Wall Street as investors weighed the potential impact of rising oil prices and slowing economic activity on interest rate policies.
Oil prices also retreated from earlier highs, hit by profit-taking after soaring on Monday following a surprise decision by the OPEC+ producers’ group to cut output in order to keep prices high.
While higher energy costs could further stoke inflation that has pummelled businesses and households worldwide, signs of economic headwinds might convince central banks to hold back on further rate hikes.
Easing fears about solvency risks in the banking sector after recent US bank failures and the emergency rescue of Credit Suisse were also lending support to equities.
“The time for pause and consideration may have arrived,” said Craig Erlam, senior market analyst at brokerage firm OANDA. “We may see most now proceed with caution and only tighten if absolutely necessary.”
After opening with slight gains, US indices slipped across the board in opening deals, handing back part of the advances chalked up on the S&P 500 and Dow on Monday.
A closely watched gauge of US factory activity from the Institute for Supply Management (ISM) missed forecasts on Monday, showing a fifth consecutive month of contraction.
That raised hopes of a Fed pause in rate hikes, and eyes are now on US jobs data due Friday that will provide the latest snapshot of the economy and potentially indicate whether further monetary tightening is likely.
In Europe, stock markets had broadly advanced before Wall Street’s open, with the Paris CAC 40 index flirting with all-time highs before ending little changed.
London’s FTSE 100 fell mainly on profit-taking in oil stocks that advanced strongly on Monday in the wake of the OPEC production cuts.
The pound meanwhile reached a 10-month high against the dollar on recent strong UK data, bolstering expectations that the Bank of England would continue to raise interest rates to cool sky-high inflation.
The uncertain outlook spurred demand for gold, which set a high for the year by rising two percent to $2,040, “supported by renewed weakness in bond yields and US dollar,” said market analyst Fawad Razaqzada at Stone X.
– Key figures around 1615 GMT –
London – FTSE 100: DOWN 0.5 percent at 7,634.52 points (close)
Paris – CAC 40: FLAT at 7,344.96 (close)
Frankfurt – DAX: UP 0.1 percent at 15,603.47 (close)
EURO STOXX 50: UP 0.1 percent at 4,315.32 (close)
Tokyo – Nikkei 225: UP 0.4 percent at 28,287.42 (close)
Hong Kong – Hang Seng Index: DOWN 0.7 percent at 20,274.59 (close)
Shanghai – Composite: UP 0.5 percent at 3,312.56 (close)
New York – Dow: DOWN 0.9 percent at 33,304.31
Euro/dollar: UP at $1.0951 from $1.0899 on Monday
Pound/dollar: UP at $1.2497 from $1.2414
Euro/pound: DOWN at 87.63 pence at 87.80 pence
Dollar/yen: DOWN at 131.57 yen from 132.46 yen
Brent North Sea crude: DOWN 009 percent at $84.20 per barrel
West Texas Intermediate: DOWN 0.5 percent at $79.99
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