Europe: Germany leads European shares lower on sentiment survey, Powell speech

EUROPEAN shares tumbled on Friday (Aug 26), with Germany in the lead as investors fretted over downbeat consumer sentiment data in the continent’s biggest economy, while a reiterated hawkish stance from Federal Reserve chair Jerome Powell added to fears.

The pan-European Stoxx 600 slid 1.7 per cent, closing down 2.6 per cent for the week. Germany’s DAX index ended 2.3 per cent lower, with a weekly fall of 4.2 per cent making it its worst week in more than 2 months.

German consumer sentiment is set to hit a record low for the third month in a row in September, a new survey showed, as households brace for surging energy bills. In contrast, French consumer confidence unexpectedly rose in August.

“German recession fears just became more intense with the sentiment index falling to a new record low... Germany is particularly reliant on external energy producers, and people are saving at the highest in 11 years, showing consumers are taking precautions in case of the worst case scenario,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Comments from Powell did not offer any respite to jittery stock markets as he noted the US economy would need tight monetary policy “for some time” before inflation was under control, which meant slower growth, a weaker job market and “some pain” for households and businesses.

“In less than 9 minutes, Chair Powell jawboned the market to avoid discounting their steadfast resolve to move into very restrictive territory and stay there as long as necessary,” said Jeff Klingelhofer, co-head of investments at Thornburg Investment Management.

“Chair Powell threw cold water on the market’s belief that the Fed will move to marginally restrictive policy and then pause.”

Euro zone bond yields rose further following Powell’s comments. Borrowing costs across the bloc had already been pushed higher after a Reuters report that the European Central Bank could debate a 75 basis point rate hike in September.

Elsewhere, regulator Ofgem said British energy bills would rise an eye-watering 80 per cent to an average of 3,549 pounds (S$5,803) a year from October, calling it a “crisis” that needed to be tackled by urgent government action.

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The retail and travel & leisure sectors fell about 3.5 per cent each, the most among European sectors.

Danish brewery Carlsberg slipped 0.3 per cent after saying its Poland subsidiary could cut or halt beer production due to a lack of carbon dioxide deliveries.

Germany’s Salzgitter Maschinenbau Group fell 2 per cent after private equity firm Dymon Asia said it was buying the lifting equipment maker’s Singapore unit.

Shares of Britain’s Micro Focus nearly doubled after Canada’s OpenText agreed to buy the enterprise software maker in an all-cash deal for US$6 billion. REUTERS