By Sruthi Shankar (Reuters) -European shares were nearly flat on Tuesday, with gains in banks and insurers offsetting losses in rate-sensitive utilities as bets that U.S. interest rates would remain higher for longer boosted Treasury yields and the dollar. Strong economic data on Monday and the passage of a U.S. funding bill to avert a federal government shutdown boosted the dollar to 11-month highs and the 10-year Treasury yield to a fresh multi-year peak. The pan-European STOXX 600 index edged up 0.2%, but hovered near a six-month low touched in the previous session.
“The fight against inflation has raised the cost of capital to levels that have triggered open cracks in the global economy,” said Peter Garnry, head of equity strategy at Saxo Bank. Europe’s utilities index dropped 0.7% to a 10-month low, pressured by the prospect of higher rates. Shares of offshore wind developer Orsted (CSE:ORSTED) fell 3.2% to a more than five-year low, while Vestas Wind Systems slid 3.0%. “Higher interest rates and commodity prices have drastically altered the assumptions behind offshore wind power… many projects in the global pipeline were negotiated on assumptions of permanently low interest rates and cheap industrial metals,” Saxo’s Garnry added.
Miners fell 0.5% as metal prices slid against a stronger dollar, although banks and insurers that tend to benefit from higher interest rates, rose about 0.5%, each. U.S. Federal Reserve officials including Governor Michelle Bowman and Fed Vice Chair for Supervision Michael Barr said on Monday that monetary policy would need to stay restrictive for “some time” to bring inflation back down to the Fed’s 2% target. Shares of German online fashion retailer Zalando slid 2.8% after Deutsche Bank cut forecast for adjusted earnings before interest and taxes, while British luxury firm Burberry dropped 2.4% following a UBS downgrade.
Boohoo dropped 8.1% after the British online fashion retailer said a slower than expected recovery in sales volumes could result in little or no top-line improvement for the full year. Novo Nordisk (NYSE:NVO) climbed 1.7% after a U.S. patent office tribunal denied requests by Mylan (NASDAQ:VTRS) Pharmaceuticals to review the validity of the patents owned by Novo covering the active ingredient in its weight-loss and diabetes drugs Wegovy and Ozempic.