Following Chairman Jerome Powell’s hawkish comments, European shares experienced their steepest one-day decline in two weeks on Tuesday as investors evaluated the likelihood of a 50-basis point rate hike by the U.S. Federal Reserve.
Stocks in the real estate and technology sectors saw a significant decline, with the pan-European STOXX 600 index closing 0.8% lower.
Powell said in prepared remarks for a hearing before the Senate Banking Committee that the Fed may need to hike rates more than anticipated and that it is ready to move in greater stages if new information requires tougher actions to control inflation.
This comes as the markets get ready for another round of rate hikes ahead of the Fed and ECB’s monetary policy meetings later this month.
Patrick Armstrong, chief investment officer of Plurimi Wealth, stated that the markets are repricing the outlook for interest rates.
The world’s economies are proving to be very resilient so far this year, which is excellent for growth but problematic for the inflationary pressures that all central banks are currently experiencing.
Consumers’ expectations for inflation in the euro zone decreased in January, according to a survey by the European Central Bank, but those for pay growth increased, fueling concerns that wage growth will impede efforts to control prices.
economists at Citigroup
Expect the ECB to increase interest rates by 50 basis points in both March and May, bringing its target rate up to 4% by July. Rates have increased by 3 percentage points since July, and the central bank has signaled a 50 basis point increase for March while still keeping the door open for more increases.
Notwithstanding this, European shares have enjoyed a respectable start to the year, rising 8.4%, outperforming their American counterparts because to a stronger economic outlook and better-than-expected earnings.
Refinitiv data show that of the 238 STOXX 600 businesses that have announced fourth-quarter earnings, 59.2% beat expectations. In an average quarter, 53% exceeded expectations.
Following China’s dismal trade report, among other notable movers, the luxury giant LVMH, which is vulnerable to China, slumped 1.1%.
After data from main metals consumer China and Powell’s remarks, lower metals prices drove the basic resources index to the bottom of European sector indexes.
Henkel of Germany fell 2.7% as investors anticipated that this year’s sales growth would be constrained by weaker industrial and consumer demand.
HelloFresh’s 10.2% decline to the bottom of the STOXX 600 was attributed to a lower-than-anticipated profit prediction for 2023. After completing a private placement at a roughly 9% discount, the Norwegian hydrogen business Nel saw an 8.3% decline.
After better-than-expected 2022 profits, German manufacturer of food processing equipment GEA Group ranked among the top STOXX 600 performers with gains of 3.7%.
On intentions to increase shareholder returns, Bank of Ireland increased by 2.4%, aiding a 0.2% increase in the ISEQ index for the nation.
