Investing
Inflation shock drives European stocks to 3-month lows
Global Banking & Finance Review®
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By Sruthi Shankar
(Reuters) -European stocks tumbled to three-month lows on Monday, dragged down by technology and travel stocks, as a sharp rise in U.S. inflation raised concerns about aggressive interest rate hikes by the Federal Reserve.
The pan-European STOXX 600 index fell 1.9% to its lowest since March 8.
High-growth technology stocks dropped 3.3% to lead the morning losses as government bond yields hit multi-year highs on bets of a faster tightening of monetary policy, with economy-linked sectors such as travel & leisure and automakers also shedding more than 3%.
The mood turned dark following a sharp Wall Street sell-off on Friday after data showed U.S. consumer prices surged 8.6% in May, its biggest gain since 1981, raising worries about a bigger 75-basis-point rate hike at the Fed meeting this week.
“We have a lot of uncertainty… less growth, more inflation combined with concerns about central banks hitting the brakes quite hard,” said Elwin de Groot, senior market economist at Rabobank.
“What we now see in the market is that the concerns are starting to feed on its own.”
The STOXX 600 has shed nearly 17% since hitting a record high in January as fears about soaring inflation, policy tightening by central banks, and recent COVID-19 curbs in China raised worries about a potential recession.
Asian stocks closed sharply lower on worries about fresh COVID lockdowns with Beijing’s most populous district of Chaoyang announcing three rounds of mass testing to quell a “ferocious” coronavirus outbreak that emerged at a bar.
Euro zone banks dropped 2.8% on disappointment that the European Central Bank did not reveal any tool to support peripheral bonds at its meeting last week. [GVD/EUR]
The spread between Italian and German bond yields hit its widest levels since May 2020, sending an index of Italian banks down 3.7%.
Adding to the downbeat mood, the first round of runoff voting saw French President Emmanuel Macron hold a razor-thin edge over the left in lower house elections.
France’s biggest banks such as BNP Paribas, Societe Generale and Credit Agricole fell between 2.7% and 3.8%.
Among other single stocks, French drugmaker Valneva plummeted 24.3% after it warned about the prospects for its COVID-19 vaccine.
Ukraine-focussed Ferrexpo Plc, a London-listed miner, slid 9.6% after it lowered output due to the ongoing conflict in the country.
(Reporting by Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu and Shailesh Kuber)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage increase.
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation, consumption, growth, and liquidity.
The Federal Reserve, often referred to as the Fed, is the central bank of the United States, responsible for implementing monetary policy, regulating banks, and maintaining financial stability.
The STOXX 600 index is a stock index that represents the performance of 600 large, mid, and small-cap companies across 17 European countries, providing a broad view of the European equity market.
High-growth technology stocks are shares of companies in the technology sector that are expected to grow at an above-average rate compared to their industry or the overall market, often reinvesting earnings for expansion.
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