On Thursday, European shares saw a decline, after data showed that business activity in June in the eurozone had slowed down significantly. This fueled worries about a sharp economic downturn, while commodity-linked stocks took a beating due to falling prices of metals and oils.
The pan-European STOXX 600 index saw a 1% drop on Thursday, with miners falling by 2.6% that taking them to a low of six months. This was after declines were extended by copper and other metals, due to increasing fears of an economic recession. There was an almost 2% drop in sectors that are deemed economically sensitive, such as automakers and banks. There was also a 1.0% decline in gas and oil stocks.
A survey from S&P Global showed that there was a significant slowdown in business activity in the eurozone and the decline was higher than expected. This was primarily because rising bills had driven customers to stay at home and cut back on purchases to save money. Market analysts stated that European assets were expected to be under pressure until inflation slows down and there is a reacceleration in global economic growth.
The ECB’s Stance
Even though the European Central Bank (ECB) has already switched to a hawkish stance and is prepared to do whatever it takes to battle inflationary pressures, this latest data will be a headwind for an economy that is already very fragile. According to predictions, the ECB is expected to hike up its deposit rate in September above zero, which would be a first in over a decade.
The downbeat mood was worsened with what the Chairman of the US Federal Reserve, Jerome Powell, had to say on Wednesday. He said that even though the central bank was not trying to engineer an economic recession and their only goal was to fight inflation, but it was a possibility. He said that they were committed to bringing prices down, even if it contributes to an economic downturn.
Thursday also saw the central bank in Norway hike up its interest rate by 50 basis points, which is the largest increase it has made since 2002.
It should be noted that the benchmark STOXX 600 index has come down by 19% from its closing high in January. The losses in this session put the index very close to confirming a bear market, which happens when there is a 20% loss from a recent high. Other European indexes that have already reported bear markets are the FTSE MIB in Italy, the CAC 40 in France and the DAX in Germany. Meanwhile, the US S&P 500 index has also entered a bear market, as it has also declined more than 20% since the beginning of the year.
Aroundtown, the real estate group in Germany, fell 9.1%, after its stock was downgraded by JPMorgan to ‘underweight’. There was also a 4.6% drop in Vantage Towers, as the rating of the telecom towers group was cut down to ‘equal weight’ by Morgan Stanley.