LONDON: European equities reversed early gains on Tuesday to extend their selloff for a sixth straight session on worries over aggressive US interest rate hikes and a potential recession.
The continent-wide STOXX 600 index declined 1.3% after sliding 2.4% to over three-month lows on Monday.
Health care and industrial stocks led sectoral losses in Europe, while battered banks edged 1.1% higher.
Wall Street’s benchmark S&P 500 index confirmed on Monday it was in a bear market, after shedding 20% since its record closing high, on growing fears that the US Federal Reserve’s aggressive monetary policy could tip the economy into recession.
Focus is on the Fed’s policy decision due on Wednesday, with many expecting a big three-quarter-percentage point rate hike following hot inflation print last week.
“The risks of a Fed-induced recession have increased, in our view, and the chances of a recession in the next six months have risen,” Mark Haefele, chief investment officer at UBS Global Wealth Management said in a note.
“Historically, during periods when inflation has been above 3%, value sectors have outperformed. We favor the energy sector and the UK market, which is heavily weighted to value stocks.” Caught in a broader selloff, the benchmark STOXX 600 has shed almost 17% since hitting an all-time high in January as investors grapple with record-high inflation in the euro zone, tightening financial conditions and a slowdown in China’s economy.
“If people are worrying about a global recession, Europe’s economic engine, Germany, is a very export driven economy and that would be a potential problem as well,” said Russ Mould, investment director at AJ Bell.
“There is also a nagging sense that the European banking system is still not in the best of health and that would be another potential weight on growth.” Consumer discretionary stocks like Ocado and Kingfisher fell 10.8% and 4.4%, respectively, on concerns of stagflation and worries of weaker consumer spending.
Oil & gas stocks rose 0.8% as crude prices advanced on concerns about tight global supplies.
Shares of Atos plunged 23.4% after the French IT company revealed a plan to split its operations and sell assets as well as the departure of Chief Executive Officer Rodolphe Belmer.
Dutch paints and coatings maker Akzo Nobel dropped 4.2% after warning of a hit to operating income due to lockdowns in China and weak demand for decorative paints in Europe.