Europe: Shares routed as recession worries heighten

EUROPEAN energy and material stocks sank nearly 6 per cent on Friday (Sep 23), pushing a broader index of regional shares to near 2-year lows as dismal euro zone data pointed to an economic downturn, adding to worries over hawkish central bank moves.

UK stocks lost 2 per cent, with further losses capped by a 3 per cent plunge in the pound after British finance minister Kwasi Kwarteng announced a series of tax cuts and measures aimed at boosting growth.

The pan-European Stoxx 600 index dropped 2.3 per cent, taking weekly losses to 4.4 per cent - its worst week since mid-June.

A survey showed the downturn in business activity across the euro zone deepened this month, likely entering a recession as consumers rein in spending amid a cost of living crisis.

Europe’s biggest economy, Germany, saw its main index hit its lowest since November 2020, down 2 per cent.

“Given the downward risks and the high degree of uncertainty, everything is pushing towards a contraction in economic activity in the eurozone over the coming quarters,” said economists at ODDO BHF, adding that Germany may already be in recession as of the third quarter.

Europe is headed for a tough winter as doubts about energy supply paint a bleak outlook for pick-up in economic activity. Add to that the European Central Bank’s clear priority for inflation control, another 75 basis point hike in October is “definitely” on the table, said ING’s Senior Euro zone Economist Bert Colijn.

The Stoxx 600 is down 20 per cent for the year. It is also about 20 per cent away from record highs hit in January.

Interest rates were sharply increased through the week, with the Fed delivering its third consecutive 75 basis-point hike and Switzerland exiting the era of negative interest rates on Thursday. The Bank of England raised rates by 50 bps.

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As oil prices tumbled 5 per cent on demand fears, BP, TotalEnergies and Shell weighed the most on Stoxx 600, down between 4.9 per cent and 7 per cent. The mining index logged its worst session in 5 months as metal prices dropped.

All major sectors were well in the red. Banks fell 3.6 per cent, with Credit Suisse shedding 12.4 per cent to hit a record low.

The Swiss bank sounded out investors for fresh cash, ources said, approaching them for the fourth time in roughly 7 years as it attempts a radical overhaul of its investment bank.

Still, the banking index in Europe was set to sharply outperform the benchmark Stoxx 600 in September on bets of the sector benefitting from a high-interest rate environment. REUTERS