European and US stocks fall as HSBC downgrades France, US mortgage rate hits 7.12%

September 23 (Evening) — U.S. and European markets faced a broad sell-off today, driven by a confluence of negative factors spanning fiscal concerns, rising interest rates, and high-profile short bets.

Market Performance

U.S. Markets:

• All three major indices opened lower, with losses accelerating through the session.
• As of 22:15 ET, the Nasdaq fell over 1%, and the S&P 500 (SPX) declined more than 0.5%.

European Markets:

• European stocks also declined across the board.
• Germany opened higher but quickly reversed, with the UK, France, and Italy all weakening.
• The Euro Stoxx 50 index turned from gains to losses, dropping over 1%.

Three Key Headwinds

1. Europe: Fiscal, Political, and Geopolitical Strains

• HSBC downgraded France to an underweight rating.
• Germany's 2-year bond yield surged, rising over 5 basis points to nearly 3.26%.
• The euro weakened, falling to its lowest level in nearly two months, down 0.4% to $1.1409.
• Sterling also fell to a 12-week low against the U.S. dollar.
• Options market data shows bearish sentiment toward the euro is at its highest since mid-August.

Analysts point to France's fiscal challenges, Germany's political uncertainty, and broader European geopolitical and inflation issues as persistent drags.

2. U.S. Interest Rates: Mortgage Rates and Fed Expectations

• 30-year fixed mortgage rate rose 15 basis points to 7.12% for the week ending September 18, according to the Mortgage Bankers Association — the highest level since May 2024.
• Mortgage rates are closely tied to U.S. Treasury yields, which are sensitive to oil prices and inflation concerns.
• CME FedWatch shows a 54.2% probability of a 25-basis-point rate hike at the Fed's October meeting.
• U.S. 2-year Treasury yield rose to around 4.8%, reflecting strong market expectations of near-term tightening.

3. "Big Short" Investor Michael Burry Expands Short Positions

• Michael Burry disclosed that he has increased short positions in:
• Micron Technology (MU)
• iShares Semiconductor ETF (SOXX)
• Nebius (NBIS)
• Palantir Technologies (PLTR)

• Burry cited comments from Acer Chairman and CEO Jason Chen, who noted:
• Certain high-end memory products remain in short supply.
• DDR4 memory has more sellers than buyers.
• Increased production of enterprise memory chips could eventually ease supply constraints and pressure prices.

Note: The authenticity of Chen's remarks could not be independently verified.

Accumulated Short Positions Across Global Markets

According to a Citi (C) research team led by strategist David Chew:

• Net positions in the Euro Stoxx 50 and U.S. large-cap stocks remain relatively stable, but investors are reducing directional risk, signaling weakening sentiment.
• Multiple markets have accumulated significant short positions, creating asymmetric risk for future moves.

This comes amid:

• The Fed's first rate hike in three years
• Further policy adjustments by the Bank of Japan
• Rising energy prices
• Geopolitical tensions

Citi describes these factors as triggering "the most synchronized risk-off wave since the start of the current rate cycle."

U.S. Market Details

• All three major U.S. indices show bearish fund flows, driven primarily by new short positions rather than exits from long positions.
• Russell 2000: All remaining long positions are now underwater.
• S&P 500 and Nasdaq: Show greater resilience, with short covering offsetting much of the bearish pressure.
• Citi notes that ~80% of both long and short positions in the S&P 500 are currently losing money. However, given the larger size of short positions, the market risk is skewed toward short covering — even a modest rally could trigger forced buying.

European Market Details

• Germany's DAX (GDAXI) and the European bank index have turned mildly bearish due to new short positions.
• The Euro Stoxx 50 saw the largest fund outflows in the region, though overall positioning remains slightly bullish.
• Citi warns that the primary risk in European markets is shifting from directional bets to positioning pressure, with most indices' long positions now in the red. The DAX has the weakest profit-and-loss structure in Europe.