Rising relief in European equities fades as growth concerns mount

Rising relief in European equities fades as growth concerns mount

“The rise in energy prices and inflation happened quite quickly and that’s taken people by surprise, so there is an element of sticker shock,” said Niall Gallagher, investment director for European equities at GAM Investments. Credit Suisse fell 2.8% after it froze 10.4 billion Swiss francs ($10.63 billion) of wealthy clients’ assets in the first quarter under sanctions imposed in connection with Russia’s invasion of Ukraine. Airbus gained 6.3% after the world’s biggest planemaker reported a higher-than-expected quarterly profit and firmed up record plans for a 50% hike in key narrowbody jet output. Oil giant Shell rose 3.1%, lifting the oil and gas sector, after reporting a record first-quarter profit of $9.13 billion, boosted by higher oil and gas prices and a strong performance of its trading division.

On Thursday, European equities sank for the second day in a row, with most major sectors giving up earlier gains following the Federal Reserve’s less hawkish comments. The travel and leisure, banking, and insurance sectors led the pan-European STOXX 600 index lower by 0.7 percent. The Fed hiked interest rates by 50 basis points on Wednesday, with Chairman Jerome Powell explicitly ruling out a 75-basis-point hike at a future meeting, but the surge in European markets dissipated just as Wall Street opened lower on Thursday. “European equity markets were firmly positive this morning, but the strong move lower in the United States is impacting stocks on this side of the Atlantic,” said Equiti Capital market analyst David Madden.”It seems that fears about lower growth in the U.S. are still in circulation despite the Fed not acting excessively hawkish.” Worries about quicker interest rate increases, China’s COVID lockdowns, the Ukraine conflict and surging inflation have all weighed on stock markets this year, dragging the STOXX 600 down more than 10% so far.

About half of the STOXX 600 companies have reported quarterly results so far, and 71% of those have topped analysts’ profit estimates, as per Refintiv IBES data. Typically, 52% beat estimates in a quarter. Overall, first-quarter earnings for European companies are expected to grow 35.4%, up from 20.8% at the start of the earnings season. The European Central Bank (ECB) is expected to raise interest rates later this year. Euro zone inflation hit a record high 7.5% in April, nearly four times the ECB’s target, but the central bank has been slow to move amid concerns about a weakening economy.

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