European Shares Fall Due to Hawkish Central Bank Stance

On Wednesday, European shares dropped over rising fears of an economic recession after chiefs of the US Federal Reserve and the European Central Bank did not shift from their hawkish stance.

Indexes fall

The pan-European STOXX 600 index recorded a fall of 0.7%, which put an end to a rally of three days. There were broad-based losses, with real estate declining by 3.5% to lead and the auto sector also shed 2.6%. Some of the other big drags on the index were miners and banks.

Christine Lagarde, the President of the European Central Bank, said that it was unlikely that markets would be able to see the era of low inflation that had existed before the pandemic return. She said that central banks needed to make adjustments amidst expectations of higher growth in prices.

Meanwhile, the chairman of the Federal Reserve, Jerome Powell said that the risk of economic recession did exist, but inflation was a more significant risk at this time. Market analysts said that considering how skittish traders are right now, the comments from Powell about ‘some pain’ needed for controlling inflation were obviously going to lead to a sell-off.

They said that it was apparent that this was just the first stage of a bear market, so there would not be any sustained bounce for now.

Markets slowing down

The STOXX 600 index has already plunged by 15% this year and is on course to record its worst quarter since the beginning of the pandemic in 2020. This is because the risk appetite has been dampened by the increasing price pressures, the uncertainty brought on by the Russian invasion of Ukraine, and the policy movements of central banks.

Analysts said that markets were now aware that an economic slowdown has begun, but they are now trying to figure out where growth is going to slow and by how much. Essentially, there is going to be a recession across several markets.

Meanwhile, a survey showed that the euro zone’s economic sentiment was a bit better than expectations because of better morale in the services and industrial sectors. Data on Wednesday also showed that inflation in Germany had fallen in June, but analysts said that this did not mean that price pressures were over. Nonetheless, the German DAX fell by 1.7%, after rallying for three days.

Individual performances

IBEX, the blue-chip index in Spain, declined by 1.6%, as data showed that Spanish inflation had risen by 10.2% in June, which was higher than expected and had been seen in 1985 the last time.

There was also a fall of 16.5% in Just Eat Takeaway.com, which brought it down to all-time lows because of doubts of whether it would be able to sell its Grubhub business in the US. There were also concerns about whether the company would be able to become profitable without needing more funding.

There was a 2.2% gain in H&M, after the second-biggest fashion retailer in the world announced an increase of 33% in its quarterly profit.