European stocks stabilise after inflation-driven rout

(Reuters) -European equities inched higher on Tuesday as investors snapped up beaten-down shares following a bruising selloff in the previous session on worries over aggressive U.S. interest rate hikes and a potential recession.

The continent-wide STOXX 600 index edged up 0.1% after sliding 2.4% to over three-month lows on Monday.

Battered banks and oil & gas stocks led sectoral gains in Europe, while real estate fell the most.

Wall Street’s benchmark S&P 500 index had confirmed on Monday it is in a bear market, or a 20% drop from its record closing high, on growing fears that the expected aggressive rate hikes by the U.S. Federal Reserve would push the economy into a recession. [.N]

Focus is on the Fed’s policy decision due on Wednesday, with many expecting a big three-quarter-percentage point rate hike following hot inflation print last week.

“The risks of a Fed-induced recession have increased, in our view, and the chances of a recession in the next six months have risen,” Mark Haefele, chief investment officer at UBS Global Wealth Management said in a note.

“Historically, during periods when inflation has been above 3%, value sectors have outperformed. We favor the energy sector and the UK market, which is heavily weighted to value stocks.”

Caught in a broader selloff, the benchmark STOXX 600 has shed almost 17% since hitting an all-time high in January as investors grapple with record-high inflation in the euro zone, tightening financial conditions and a slowdown in China’s economy.

Oil & gas stocks edged 0.7% higher as crude prices rose about $1 per barrel on concerns about tight global supplies. [O/R]

Among single stocks, German business software group SAP edged 0.5% higher after U.S. firm Oracle Corp post upbeat quarterly results, helped by soaring demand for its cloud products.

Shares of Atos plunged 18.7% after the French IT company revealed a plan to split its operations and sell assets as well as the departure of Chief Executive Officer Rodolphe Belmer.

Dutch paints and coatings maker Akzo Nobel dropped 5% after warning of a hit to operating income due to lockdowns in China and weak demand for decorative paints in Europe.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Sherry Jacob-Phillips)