December 7, 2023

Inflation Shock Pushes European Stocks to 3-Month Lows

On Monday, European stocks slid to lows of three months, as a major increase in US inflation gave rise to worries about an aggressive hikes in the interest rates by the Federal Reserve. This could put the economy at the risk of recession.

European Stocks Fall

There was a 2.4% decline in the STOXX 600 pan-European index, which came down to the lowest value since March 7th. There was also a 4.2% drop in tech stocks that usually see high growth, as yields of government bonds reached highs because of the expectation of more monetary policy tightening.

Other sectors linked to the economy, such as leisure and travel, along with automakers, also ended up falling between 5.3% and 4.5%. The mood was rather gloomy after a massive sell-off on Wall Street on Friday because US consumer price data showed that prices had increased by 8.6% in May. This was the highest gain recorded since 1981, which increased expectations of a rate hike by the Fed by 75 basis points.

Market analysts said that the markets are very uncertain and more inflation and less growth are just adding to it. Moreover, it also means that the central banks are going to continue hiking the interest rate. The volatility index for euro STOXX also reached a high of one month. There has been a 16.5% decline in the STOXX 600 since it managed to reach a record high back in January.

This is because worries about an economic recession were high due to monetary policy tightening, surging inflation and the recent coronavirus curbs that were imposed in China. According to analysts, the biggest concern for investors is that central banks don’t really have any other option at their disposal. They are facing a dilemma and don’t have any choice other than hiking aggressively in order to beat back inflation.

Asian Stocks Close Lower

There was also a slide recorded in Asian stocks because of fresh coronavirus lockdowns announced in China. The most populous district of Beijing is known as Chaoyang and it announced conducting three rounds of testing to end a COVID-19 outbreak that happened at a bar.

There was also a 3.1% fall in the eurozone banks because of disappointment that no new tool was introduced by the European Central Bank (ECB) last week in its meeting for supporting peripheral bonds. The spread between yields of German and Italian bonds also reached its widest level after May 2020, which saw a 3% decline in the Italian banks’ index.

The mood was down even further when Emmanuel Macron, the French President, only had a razor-thin edge in the first round of voting for elections in the lower house. There was a decline in some of the biggest French banks between 4% and 4.7%, which include Credit Agricole, SocieteGenerale and BNP Paribas. As for individual stocks, Valneva, the French drugmaker, saw its value decline by 25.3%, after it warned of the possibility of a COVID-19 vaccine deal falling through.

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