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The European Central Bank should hike interest rates as many as three times this year to combat inflation, hawkish policymaker Robert Holzmann said over the weekend. The benchmark STOXX 600 has shed over 5% so far in May, as China’s COVID curbs, aggressive monetary policy tightening, and the Ukraine war stoke concerns about a global economic slowdown. The index is down about 14% since hitting an all-time high in January.
On Monday, European markets fell to two-month lows, led by miners, as investors worried about a dramatic economic downturn in China owing to extended COVID-19 restraints, while rising bond costs weighed on technology sectors. The STOXX 600 index in Europe fell 1.2 percent to its lowest level since March 10. Chinese iron ore futures tumbled more than 6% on fears about demand in the world’s second-largest economy after statistics showed April export growth slowed to single digits. As U.S. and European government bond yields jumped to multi-year highs on expectations for quicker interest rate hikes aimed at curbing a surge in inflation, tech stocks fell 2.1 percent to December 2020 lows.
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“Fears of a GDP slowdown, hawkish central banks plus increasing real yields and political uncertainty will linger short term, further pressuring PEs and triggering negative earnings revisions,” Michele Morganti, senior equity strategist at Generali Investments said in a note. Adding to the gloom, investor morale in the eurozone fell in May to its lowest level since June 2020, as the impact of the war in Ukraine on Europe’s largest economy becomes increasingly clear.
“The positive effects of the good Q1 reporting season and activity reopenings could be short-lived,” Morganti added. Of the nearly 60% of European companies that have reported results so far, 72% have topped analysts’ profit estimates, as per Refintiv IBES data. In a typical quarter, 52% beat estimates.
Chipmaker Infineon fell 2.4% despite lifting its full-year outlook as it benefits from a global shortage of semiconductors. Dutch postal firm PostNL slumped 12.1% after it cut its full-year forecast, warning that economic uncertainty, growing inflation, and pressure on e-commerce volumes make 2022 “more challenging than previously anticipated.”
BBVA gained 1.6% after Deutsche Bank upgraded the stock to “buy”, saying the Spanish lenders’ key strengths remain untouched even under increasing economic uncertainty. Defensive sectors such as utilities and telecoms fell the least, while oil & gas stocks were flat with brokerage Cowen lifting the price target on oil major Shell.
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