European shares fall as investors fret about inflation, aggressive interest rates

The pan-European Stoxx 600 index reverses early session gains

European shares tumbled on Thursday as minutes from the central bank’s last meeting fanned fears about the state of inflation in the euro zone and aggressive policy moves to tame it, while weak retail sales data added to jitters around an economic slowdown.

The pan-European Stoxx 600 index reversed early session gains and was down 0.6 per cent, extending losses to a second straight session.

European shares had seen a boost at the start of the week on hopes the US Federal Reserve and other central banks will pivot to a less hawkish policy approach.

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However, minutes from the European Central Bank’s September 7-8th meeting showed policymakers appeared worried that inflation could get stuck at exceptionally high levels, making aggressive policy tightening necessary even at the cost of weaker growth.

“Market is still priced for an aggressive rate hike from the ECB (at the next meeting) and if you look at pretty much all comments coming from the ECB Governing Council, and from the Fed, the main message still seems to be inflation is the number one priority,” said Huw Roberts, director of analytics at Quant Insight.

Dublin

Most of the heavy hitters on the Iseq – CRH, Kerry, AIB, Smurfit Kappa and Ryanair – sank in value on Thursday, reflecting wider market worries about the incoming impact of inflation and higher borrowing costs.

Ryanair fell nearly 2 per cent to €10.88 with the airline’s cost base aggravated by the prospect of further hikes in oil prices. Countering the downswing was Kingspan, which rose 3.4 per cent to €49.30. The insulation maker had fallen by nearly 7 per cent in the previous session in what’s been a volatile week for the stock.

The company last week completed the acquisition of French group Ondura for €550 million in cash. Flutter, which owns Paddy Power Betfair was another to buck the downward trend, rising 1.6 per cent to €119.45.

London

UK’s FTSE 100 index fell on Thursday with Shell weighing on the commodity-heavy index after the oil major said its third-quarter profits would be pressured as concerns grew over a global economic slowdown. The benchmark FTSE 100 closed 0.8% down, while the more domestically oriented FTSE 250 added 0.4 per cent.

Shell slid 2.8 per cent after the oil major said its third-quarter profits would be pressured by a near-halving of oil refining margins, crumbling chemical margins and weaker natural gas trading. Peer BP was flat.

“The message from Shell is being seen as a proxy for the oil and gas industry in general, that is the excess profits that they were making previously are now coming to an end as the price of oil comes down,” said Stuart Cole, head macro economist at Equiti Capital.

“But beyond this, the underlying message is that demand for oil and gas, refined products, plastic is falling, which is being seen as a sign of falling global demand.” Mining stocks slid 1.4 per cent with Anglo American leading losses as Berenberg cut the miner’s rating to “hold” from “buy”.

The FTSE 100 was still headed to end the week higher as investors assessed the British government’s reversal of tax cuts in its new fiscal policy and a fall in global bond yields spurred appetite for riskier equities early in the week.

Capping some losses, Imperial Brands added 2.5 per cent on announcing a £1 billion share buyback programme and said FY22 trading was in line with expectations.

Europe

Data showed Euro zone retail sales fell in August, pointing to a weakness in consumer demand and underlining expectations of an approaching recession. After mixed economic data from the United States, the non-farm payrolls report due on Friday will be on investors’ radar to gauge the Fed’s stance on its ultra-hawkish approach.

Adding to nerves around inflation on Thursday was a sharp rise in oil prices as OPEC+ agreed to tighten global crude supply with steep production cuts. Most of the Stoxx sub-sectors were in the red, led by a roughly 2 per cent decline in miners and utilities. Credit Suisse Group rose 2.6 per cent after JPMorgan upgraded the Swiss bank’s stock to “neutral” from “underweight”.

New York

Wall Street’s main indexes fell on Thursday on concerns about persistent inflation and the Federal Reserve’s aggressive rate-hike cycle, while shares of Tesla slipped on worries over funding for Elon Musk’s proposed buyout of Twitter.

Before dropping, markets briefly took comfort from data which showed an increase in weekly jobless claims as it raised hopes of the Fed likely to go easy with its rapid rate hikes.

“The jobless claims in and of itself don’t mean a huge amount; the thing is that none of this is bad enough yet to really speak seriously about a Fed pivot,” said David Russell, vice-president at Market Intelligence at TradeStation Group.

The benchmark 10-year Treasury yield initially moved lower before rising to a one-week high, weighing on rate-sensitive growth stocks including Meta Platforms, Amazon, and Nvidia.

Tesla fell 0.5 per cent as Apollo Global Management Inc and Sixth Street Partners, which had been looking to provide financing for Musk’s $44 billion (€45 billion) Twitter deal, are no longer in talks with the billionaire. Alphabet edged 0.77 per cent higher after the launch of Google’s new phones and its first smartwatch.

— Additional reporting by Reuters

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times