What’s Pushing European Stocks Down?
European stocks sank on Wednesday, led down by a 6% drop in Credit Suisse following a profit warning. Investors awaited the European Central Bank’s meeting on Thursday and the Federal Reserve’s meeting next week.
The pan-European STOXX 600 index was down 0.3 percent at the time of writing, having given up early gains. Credit Suisse warned it was expected to incur a group-wide loss in the second quarter as volatility impacted its investment bank; sending banks down 0.7 percent. “The concern is whether banks can handle volatility wisely, and (the Credit Suisse warning) just makes people nervous overall,” said Nordea Asset Management’s Sebastien Galy, a senior macro analyst. Energy stocks rallied, limiting the losses, as oil prices rose on expectations of low U.S. stockpiles.
Outlook on Stock Market
Retailers jumped 1.6 percent on Wednesday as Target (NYSE: TGT) warned of additional margin pressure; Zara owner Inditex (BME: ITX) was up 4.6 percent; it had an 80 percent increase in net profit for the February-April quarter. Meanwhile, when inflation hit a new high last month, money markets increased their bets on ECB rate hikes; they had 75 basis points of increases by September. The central bank has indicated that hikes will begin in July; moreover, markets have already factored in two 25-basis-point increases. “It would be really difficult for the ECB to deliver 50 basis points in July because it would generate a lot of uncertainty and a feeling of fear from the ECB about inflation,” Galy added.
Markets have run out of steam as rising prices, tighter monetary policies and uncertainty about the Ukraine conflict have investors concerned about a recession; Moreover, a loosening of COVID-19 restrictions in China, the world’s second-largest economy, promises some. Still, the country’s zero-COVID policy remains a source of concern. “As the pressure on consumers’ actual spending power grows and additional supply difficulties arising from China’s zero-COVID goal emerge,” Citigroup (NYSE: C) strategists warned, “the risks are not necessarily to the upside from here.”
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