European shares hit over one-week low as recession worries weigh

By Devik Jain and Amruta Khandekar

(Reuters) -European shares fell for a fifth straight session on Tuesday, as investors fretted about the prospects of a global economic downturn and corporate profits being squeezed by rising interest rates as central banks step up their fight against inflation.

The region-wide STOXX 600 index closed down 0.6%, hitting an over one-week low.

The index has dropped 3.7% in the past five sessions, with equity markets on edge as data points to strength in the U.S. labour market and Federal Reserve policymakers stay hawkish, fuelling fears of aggressive interest rate hikes pushing the economy into a recession.

Adding to recession worries, the International Monetary Fund cut its global growth forecast for 2023, warning that conditions could worsen significantly next year.

Also weighing on sentiment was news that Shanghai and other cities in China had stepped up testing and put in place curbs to stem a rise in COVID-19 infections.

As Europe grapples with surging inflation and escalating geopolitical tensions from the Russia-Ukraine crisis, investors are looking at third quarter earnings reports for clues on the impact of policy tightening and the economic growth outlook.

“The markets are focused on what earnings are going to be next quarter, what energy prices are going do in the winter. You have the Ukraine conflict, the strong dollar, you have interest rates increasing,” said Jeffrey Germain, director of investments at Brandes Investment Partners.

“So there’s no shortage of concerns in the short term.”

Meanwhile, the battered UK bond market got some relief after the Bank of England (BoE) said it would start purchasing inflation-linked debt.

However, data showed Britain’s unemployment rate fell to its lowest since 1974 at 3.5%, adding to inflation worries and putting pressure on the BoE to keep raising rates aggressively.

London’s blue-chip FTSE 100 index fell 1.1%, while a domestically-focused mid cap index dropped 1.3%.

Most STOXX 600 sectors were in the red, with financials and technology stocks weighing on the pan-European index.

However, healthcare stocks rose 0.6% with Qiagen at the top of the index after a report the German genetic testing company and U.S.-based diagnostics group Bio-Rad Laboratories were in talks to merge.

Givaudan slid 6.8% after the Swiss fragrance and flavour maker said sales growth slowed in the third quarter.

Var Energi slumped 9.6% after the Norwegian oil firm revised down its full-year guidance.

(Reporting by Devik Jain and Amruta Khandekar in BengaluruEditing by Mark Potter)