(June 23): European markets started to lose again as a sharp slowdown in economic expansion in the euro zone reignited fears that a
recession is looming.
The Stoxx Europe 600 index fell 0.5% to 403.78 at 2:18 p.m. in London after briefly erasing declines around midday.
Real estate and banking stocks fell the most, while consumer products and utilities rose. The Stoxx 600 is now 18% below its January high.
Stocks started losing again after data showed U.S. jobless claims last week plateaued near a five-month high.
Equity strategists are optimistic that at least some of the losses on European equities will be recovered. The region’s main benchmark will end the year at 467, implying a 14% rise from Tuesday’s close, according to Bloomberg’s average of 15 monthly survey forecasts.
Eurozone economic expansion has slowed sharply, with an S&P Global economic activity indicator falling to a 16-month low in June, driven by runaway inflation, energy concerns and rising borrowing costs.
On Wednesday, Federal Reserve Chairman Jerome Powell acknowledged most explicitly yet that sharp interest rate hikes could tip the U.S. economy into recession, saying a recession is possible and calling it a landing. smoothly from “very difficult”.
Adding to concerns in Europe is the war in Ukraine, which has led to supply constraints and a spike in commodity prices, with the Stoxx 600 poised for its worst first half since 2008.
As stocks in the region fell, Ray Dalio’s Bridgewater Associates built a $10.5 billion bet against European companies, nearly doubling its bet last week to reach its most bearish position against stocks in the region in two years.
Investors are also pricing in the region’s latest economic data as growth in Europe’s two largest economies – France and Germany – has slowed sharply. Manufacturers have suffered from a shortage of demand, increasingly tight supply chains and soaring prices.
“The situation remains the same but it looks like the market is starting to learn to live with it, as it looks for a floor,” said Diego Fernandez, investment director at A&G Banca Privada in Madrid. “It’s still hard to see any positive catalysts and that’s why inflows remain weak, but there are some interesting medium-term opportunities now.”
Fernandez is in favor of taking riskier positions through credit now, as he says it is too early to overweight equities, since corporate earnings have not yet suffered the impact of inflation on margins.
Thursday is the anniversary of the 2016 Brexit referendum, and the FTSE 100 index has fallen around 8% in dollar terms since the vote, massively underperforming all major equity benchmarks. However, the tide could turn as the UK index is outperforming other developed markets this year.
Among individual moves, Aroundtown SA fell 11% as JPMorgan Chase & Co. cut its rating on the German owner to underweight from neutral and lowered its price target.