By Shreeshi Sanyal, Johan M Cherian and Susan Mathew
(Reuters) – European shares fell 1.8 percent on Thursday, as recession fears escalated after the U.S. Federal Reserve raised another massive interest rate hike and signaled more in its fight against stubbornly high inflation.
The European index hit its lowest level since February 2021, led by interest rate-sensitive technology and real estate stocks, which fell more than 4% each, the latter hitting two-year lows.
The Federal Reserve signaled more gains after its third hike of 75 basis points this year on Wednesday, and seemed less hopeful of a soft landing for the US economy.
Markets have had to take into account several central bank decisions this week, including hawkish moves from Sweden, Switzerland and the UK, and intervention in Japan.
“(Thursday’s pullback) is a follow-up to last night’s Fed meeting,” said Giles Coghlan, chief market analyst at HYCM. “The markets are trying to absorb all the central bank’s actions during the past 24 hours.”
“Stock traders are seeing higher interest rates, not only in the US but also in the UK and Europe. So there is not much reason for equity traders to be encouraged.”
European Central Bank Governing Council member Isabel Schnabel said interest rates should continue to rise because inflation remains very high, even as the eurozone faces economic contraction.
The STOXX 600 index saw its decline for the second month in a row as Europe also grappled with an energy and cost-of-living crisis amid the Russia-Ukrainian war hampering gas flows. With possible blackouts during the winter season, analysts expect a deeper recession in the eurozone.
Thursday’s data showed consumer confidence in the euro zone fell more-than-expected 3.8 points in September from August.
“In the very short term we are very pessimistic about eurozone stocks … because they have big risks during the winter in terms of energy and geopolitics,” said Xavier Chappard, strategist at La Banque Postal Asset Management.
London’s index fell 1.1% after the Bank of England raised interest rates by 50 basis points and said it would continue to “respond aggressively, as necessary” to inflation, despite the economy entering a recession. ()
Shares of travel and leisure companies fell 3.2%, along with the French hotel group Accor (EPA:) fell 6.9% after JPMorgan cut its rating to “underweight” due to concerns about profitability.
Spain’s Sabadell Bank rose 5.0 percent after receiving indicative bids from France’s Worldline, Italy’s Nixi and US company Fiserve (Nasdaq) for the payments division, which sources said is worth 400 million euros ($393.64 million).
(1 dollar = 1.0160 euro)