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European stocks plunge amid investor worries

Relevance up to 11:00 2022-06-08 UTC–4

On Tuesday’s trading, Europe’s leading stock indices were showing a steady decline amid traders’ fears of a European Central Bank (ECB) interest rate hike.

The STOXX Europe 600, a composite indicator of Europe’s leading companies, fell 0.38% to 442.55 points.

Top performers amongst the STOXX Europe 600 components are real estate firm Sagax AB (+2.9%), investment company EQT AB (+2.7%) and health and hygiene products manufacturer SKF AB (+2.4%).

Stocks of low-cost carrier Wizz Air (-2.9%), software developer TeamViewer (-2.7%) and biopharmaceutical company MorphoSys AG (-2.4%) topped the decline list here.

Meanwhile, the British FTSE 100 index was down by 0.15%, the French CAC 40 lost 0.43% and the German DAX dropped by 0.62%.

Biggest and least gainers

Swiss logistics group Interroll was down by 9% as economists at Credit Suisse, one of Switzerland’s largest financial conglomerates, cut their target price for the company’s shares.

The capitalisation of the British publisher Pearson dropped by 0.5%. The day before, the company’s management announced the sale of its K12 Courseware business in Italy and Germany for $204.3 million to Finnish publisher Sanoma Corp.

UK waste management company Biffa Plc has soared 28%. Earlier, the media reported that investment giant Energy Capital Partners planned to buy the company for ?1.36bn.

The share price of British sporting goods retailer JD Sports fell 1.7% amid allegations that the company colluded to inflate product prices with sporting goods manufacturer Elite Sports and Scottish football club Rangers.

Reasons for market decline

Experts say the main reason for the persistent decline in European stock markets on Tuesday is investor fears about the prospects of a tightening of the ECB’s monetary policy. The publication of the regulator’s monetary policy decision is expected next Thursday. The market hopes that the European regulator will announce further steps to halt asset purchases and increase the base rate to a non-zero level for the first time in eight years.

Market participants’ fears can hardly be described as groundless. Expectations of a tighter monetary policy by the European regulator are attributed to the persistently rising inflation rate and the unclear outlook for the economy.

For example, the EU Statistics Office earlier reported that the consumer price level in the Eurozone soared by 8.1% year-on-year last month. At the same time, market analysts had earlier predicted an increase of only 7.7%. By the way, May’s result was an all-time record and more than quadrupled the European Central Bank’s target of 2%.

Meanwhile, Construction Purchasing Manager’s Index (PMI) fell to 49.2 points in May from 50.4 points in April. For the first time in nine months, the index was below the 50-point mark separating an increase in business activity in the sector from a decline. The May decline was the biggest since February 2021.

The outcome of the vote of no confidence in British Prime Minister Boris Johnson also remains in the spotlight for European investors on Tuesday. The vote of no confidence in the politician was expressed by 148 single-party members, while 211 did not support the vote of no confidence. Thus, the Conservatives did not get the necessary number of votes to dismiss the Prime Minister, which means that Boris Johnson remains in office.

This week, European stock exchanges are waiting for Friday’s report from the US Department of Labor on the nation’s consumer price movements over the past month. This data will give an indication of the current state of the US economy. In addition, the Labor Department’s report will traditionally be an important reference for the US Federal Reserve when deciding on further monetary policy tightening.

According to preliminary expert forecasts, the rate of inflation in the US remained at April’s level of 8.3% in May.

Trading results

As for yesterday’s trading session, European stock indicators showed a strong increase on Monday on the back of positive news from China.

As a result, the British FTSE 100 stock index climbed by 1% to 7608.22 points, the French CAC 40 rose by 0.98% to 6548.78 points and the German DAX surged by 1.34% to 14653.81 points.

French aircraft engine maker Safran and Societe Generale have soared 2.4% and 2.6%, respectively supported by positive recommendations from US independent investment firm Jefferies.

The share price of Dutch online food ordering and delivery company Just Eat Takeaway.com NV rose by 11.8%. Meanwhile, the German food delivery service, Delivery Hero SE, was up by 9.4%.

The capitalisation of the British-Swedish pharmaceutical company AstraZeneca lost 3.5% in trading the day before.Faroese salmon farming company Bakkafrost dropped by 3.3%.

On Monday stock market participants in Europe were focused on statistical data from China. According to previously published information, the country’s purchasing managers’ index for services increased in May compared with April, due to an easing of restrictions related to COVID-19 infection in China’s major cities.

According to Caixin, the indicator climbed to 41.4 points last month from April’s 36.2 points (the lowest figure in the past 26 months). The data published the day before point to a strong recovery of the Chinese economy as well as to positive trends in the global economy. In addition, analysts forecast that the easing of coronavirus restrictions will stimulate a rapid recovery of the supply chain.

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