Concerns about a slowing economy and a gloomy forecast from Credit Suisse weighed on European shares on Wednesday, as investors braced for the European Central Bank’s meeting on Thursday and the Federal Reserve’s meeting next week. The STOXX 600 index fell 0.6 percent across Europe. Banks fell 0.9 percent after Credit Suisse predicted a group-wide loss in the second quarter due to volatility in its investment bank.
Credit Suisse dropped over 7% in early trading before sharply reversing losses to end up 3.8%, with traders citing an Inside Paradeplatz report saying that U.S-based State Street is planning a takeover bid for the troubled Swiss lender. Other financial stocks like HSBC Holdings and UBS Group fell 1.7% and 2.6%, respectively, leading losses on the STOXX 600.
“What’s weighing on financial stocks is concerns about economic growth slowdown. Perhaps consumer confidence is taking a knock, consumers may be less willing to take out extra borrowing,” said Susannah Streeter, senior markets analyst at Hargreaves Lansdown. “In many ways there has already been certain amount of weakness factored in, but it (Credit Suisse’s announcement) certainly comes as a fresh wave of disappointment.”
Meanwhile, money markets ramped up their bets on ECB rate hikes to price in 75 basis points of increases by September as inflation hit record high last month. The central bank has so far signalled hikes starting in July, and markets had earlier priced in two 25 basis-point rises.
Some hope comes from an easing of COVID-19 restrictions in China, the world’s second-largest economy, but its zero-COVID strategy is still a worry. Data released on Wednesday showed German industrial production recovered but rose less than expected. Retailers, which slid on Tuesday after U.S. peer Target warned of a further margin squeeze, rose 2.1%, with Zara-owner Inditex up 6.3% after reporting an 80% jump in net profit for the February-April period.
“It’s very difficult for the ECB to deliver 50 bps in July because it would create a great amount of uncertainty, a sense of panic from the ECB regarding inflation,” said Sebastien Galy, a senior macro strategist at Nordea Asset Management. Markets have run out of steam as surging prices, tightening monetary policies and uncertainties stemming from the Ukraine war keep investors worried about recession.
Among other stocks, Wizz Air fell 9.5% after the European budget airline reported a bigger annual loss on soaring fuel costs and said it was deploying extra resources to minimise disruptions from staff shortages and supply-chain snags. Swedish online gaming group Kindred jumped 7.7% after it was granted a gambling licence in the Netherlands.
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