By Shreyashi Sanyal, Johann M Cherian and Susan Mathew
(Reuters) – European shares slumped 1.8% on Thursday, as recession worries heightened after the U.S. Federal Reserve delivered another jumbo-sized interest rate hike and signalled more in its fight against stubbornly high inflation.
The pan-European STOXX 600 index hit its lowest since February 2021 led by rate-sensitive tech and real estate stocks which fell more than 4% each, with the latter hitting over two-year lows.
The Fed signalled more hikes after delivering its third 75 basis points hike of the year on Wednesday, and sounding less hopeful of a soft-landing for the U.S. economy.
Markets have had to reckon with several central bank decisions this week, including hawkish moves from Sweden, Switzerland, the United Kingdom, and intervention in Japan.
“(Thursday’s decline) is a follow through from last night’s Federal Reserve meeting,” said Giles Coghlan, chief market analyst at HYCM. “Markets are trying to digest all of the central bank action of the last 24 hours.”
“Stock traders are seeing higher interest rates coming across, not only the U.S. but also the UK and Europe. So there isn’t much reason for stock traders to take encouragement.”
European Central Bank board member Isabel Schnabel said interest rates need to keep going up as inflation is still far too high, even as the euro zone faces an economic downturn.
The STOXX 600 eyed its second straight month of falls as Europe grapples also with an energy and cost of living crisis amid the Russia-Ukraine war hampering gas flows. With potential blackouts during the winter, analysts predict a deeper recession for the euro area.
Data on Thursday showed euro zone consumer confidence fell by a more than expected 3.8 points in September from August.
“In the very short term we are very bearish on euro zone stocks… because they have big risks during the winter in terms of energy and geopolitics,” said Xavier Chapard, strategist at La Banque Postale Asset Management.
London’s FTSE 100 index dropped 1.1% after the Bank of England hiked rate by 50 bps and said it would continue to “respond forcefully, as necessary” to inflation, despite the economy entering recession. [.L]
Travel and leisure stocks slid 3.2%, with French hotel group Accor tumbling 6.9% after J.P.Morgan downgraded to “underweight” on concerns about profitability.
Spanish bank Sabadell rose 5.0% after it received indicative bids from France’s Worldline, Italy’s Nexi and U.S. firm Fiserv for its payments arm, which sources said was valued at up to 400 million euros ($393.64 million).
($1 = 1.0160 euros)
(Reporting by Shreyashi Sanyal, Johann M. Cherian and Susan Mathew in Bengaluru; Editing by Saumyadeb Chakrabarty and Lisa Shumaker)