On Friday, there was a drop in European shares and they recorded losses for the week after the highest ever increase in producer prices in Germany only made the economic outlook gloomier.
Things do not appear to be good for the biggest economy of the region and this has once more triggered worries of an economic recession.
There was a 0.8% drop in the continent-wide STOXX 600 index, with declines led by travel stocks. German producer prices rose to their highest in July, both in month-on-month and year-on-year increases.
This was due to the increase in energy prices because of the Russia and Ukraine war. There had been a 105% jump in energy prices on a whole, as compared to last year in July.
There was a 1.1% drop in the German DAX index, as it declined the most amongst its peers on the continent. The 10-year German government bond yields climbed to their highest in four weeks.
There is a 1% weekly decline expected in the benchmark index, as investors are weighing the worries about spiraling inflation, the impact of monetary policy tightening, contracting economies in the region, and weak economic data.
Last week, the index recorded gains of about 1%. Market analysts said that the European markets had run out of steam this week.
They were partly worried because of the big rises in inflation, such as the UK CPI as well as the eye-watering increase in the German PPI for the previous month.
Interest rate hikes
Money markets have already priced in an interest rate hike of yet another 50 basis points by the European Central Bank (ECB) in September.
In early August, there had only been a 50% probability of such a move priced in. There is also a small probability that the interest rate could be hiked by 75 basis points.
Market analysts said that the ECB’s credibility would come into question if it does not continue raising rates.
Therefore, it is likely that an interest rate hike of the same size can be expected, but whether they will get more aggressive cannot be said because they are already walking a tightrope.
There was a 1.3% drop in Sodexo, as the rating of the French catering food and services stock was adjusted by Jefferies from ‘buy’ to ‘hold’.
This move was just a precaution in case there is a recession in the fiscal year 2023-2024. A 25.8% rise was also recorded in Just Eat Takeaway.com, as it climbed to the top of the STOXX 600 index.
This was after the company decided to sell its stake in Prosus, the iFood to a technology investor in Brazil. The stake is about 33% and the sale was for $1.8 billion.
A 1.3% drop was seen in the shares of Prosus. A 9.8% jump was also recorded in FLSmidth, after it raised its sales outlook for the year. The cement and mining equipment maker managed to beat its forecasts for the second quarter.