European Stocks Stumble With Bleak Start For Final 2022 Quarter

On Monday, European stocks recorded declines, with financial and technology stocks tumbling as investors were fretting about the continent’s economic health.

This is because of the inflation that appears to be quite rampant in the euro zone, which has prompted central banks to deliver aggressive interest rate hikes to combat it.

Index falls

The final quarter of the year had a rather weak start as there was a 1.3% decline in the continent-wide STOXX 600 index by 0829 GMT. It was also tracking a torrid trading session recorded on Friday on Wall Street.

Market sentiment took a hit when results of a survey showed that last month had seen yet another decline in the euro zone’s manufacturing activity.

This was in light of a growing cost of living crisis that had made consumers wary and production was also limited due to rising energy bills.

The third quarter also saw the Italian economy shrink and the latest Treasury forecasts show that it will continue shrinking for the next two quarters as well.

This indicates that the third largest economy in the euro zone is heading towards a technical recession.

Market analysis

According to experts, the markets are now dealing with a period of fear. This is evident in the UK markets, where the announcement of tax cuts should actually benefit the market.

Yet, the markets have reacted in the opposite manner, which shows that things have begun to become very interesting, but there is a great deal of prudence required.

Analysts also said that about a month or two ago, it had been possible to forecast a slowdown and even a potential recession in the next few quarters, both in the UK and Europe.

However, the picture has become rather confusing for now because inflation has turned out to be a lot more troublesome and stronger than expected.

The export focused FTSE 100 index in Britain performed better than its regional peers, as it only lost 0.9% after there was a reversal of some tax plans announced in the country.

Liz Truss announced that they would no longer be reducing the highest rate of income tax, which sparked chaos in the financial markets and a rebellion in her own Conservative party.

Overall performance

So far, there has been a 21.5% decline in the STOXX 600 index this year, as the Russia and Ukraine conflict soured risk sentiment and pushed up gas prices in the region.

This has seen inflation soar and has also resulted in concerns about a recession induced by central banks due to their aggressive rate hiking.

There was a 2.5% drop in both tech and banking stocks, which were leading losses in the STOXX 600 sectors.

But, the oil and gas sector seemed to outperform, as it rose 1.8% over talks of OPEC+ reducing its output.

There was a 9.2% drop in Credit Suisse, which reflected the concern of the market about the Swiss bank, as it is working on restructuring plans scheduled for announcement on October 27th.