Irish shares were part of a wider sell-off across Europe as concerns grew that central banks would respond to increasing inflation by keeping interest rates higher for longer. The Stoxx-600 index, which tracks leading shares in Europe, experienced a decline during the session. Irish companies that rely heavily on earnings from overseas markets also saw their shares fall, with Kingspan, a construction materials maker, sliding 3%, while Ryanair and Irish Ferries-owner ICG both closed lower by 1%. The immediate catalyst for the sell-off was a rise in global wholesale energy costs, while the intentions of the US Federal Reserve, chaired by Jerome Powell, further unsettled stock markets.
Chris Beauchamp, the chief market analyst at IG, an online trading broker, described it as “another miserable day for stocks” and highlighted the rising oil prices as a contributing factor. He noted signs of fear in the market, such as a rising Vix (a volatility measure) and a surging put/call ratio. Beauchamp also observed a lack of buyers in the market.
The concerns about interest rates were also reflected in global government debt markets. The implied cost of borrowing for the Irish Government over 10 years rose to over 3%, while the yield for the British 10-year bond increased to 4.72% and the German 10-year bond traded at 2.69%.
In terms of energy prices, European wholesale gas prices fell slightly in the latest session but remained at elevated levels compared to early summer. Despite stockpiles being filled in preparation for winter demand, gas prices continued to trade around €37 per megawatt hour for delivery in September and over €55 for gas supplies in December. Gas is a crucial fuel for electricity generation in Ireland and across the rest of the continent.
Oil prices, on the other hand, experienced a slight increase due to tightening supplies. This temporarily diverted attention from concerns about the Chinese economy and US monetary policy, which had led to a three-day drop. Brent crude rose by $1.13 to $84.58 a barrel. Physical markets worldwide showed signs of robust demand, with US commercial oil inventories at their lowest since January and top buyers in Asia engaging in a crude-buying spree.
Minutes from the US Federal Reserve’s July policy meeting revealed that most participants saw “significant upside risks to inflation, which could require further tightening of monetary policy.” However, two officials favored leaving rates unchanged or could have supported such a proposal instead of the authorized rate hike. Michael Hewson, the chief market analyst at CMC Markets, described the minutes as reasonably hawkish, but there was surprise that only two members appeared to support keeping rates unchanged.
Overall, the sell-off in European markets, including Irish shares, was driven by concerns about inflation and the potential response of central banks. Rising oil prices and the intentions of the US Federal Reserve added to the unease among investors. The impact was also felt in global government debt markets, with borrowing costs rising. In the energy sector, European wholesale gas prices remained high despite stockpiles being filled, while oil prices saw a temporary rebound due to tightening supplies. The minutes from the US Federal Reserve’s policy meeting indicated a cautious approach to inflation, but there were differing opinions on interest rate hikes.