June 28, 2022

European Shares Fall as Credit Suisse Drags Banks Lower

On Wednesday, European shares declined by 6%, as a profit warning from Credit Suisse weighed on lenders. Meanwhile, investors were bracing for a meeting of the European Central Bank (ECB) scheduled on Thursday and one of the US Federal Reserve that will take place in the coming week. There was a 0.3% fall recorded in the STOXX 600 index, as it lost the early gains it had made. There was a 0.7% drop in banks after Credit Suisse announced that the second quarter would result in a group-wide loss, with the investment bank taking a hit because of the market volatility.

Market strategists said that investors were becoming increasingly nervous about the ability of banks when it comes to handle volatility, particularly after the warning from Credit Suisse. Energy stocks helped cap the losses, as oil prices climbed higher over expectations of low inventories in the US. On Tuesday, retail stocks were weighed down because of US retailer Target Corp warning of a reduction in margin. But, they saw an increase of 1.6% on Wednesday after Inditex, the owner of Zara, climbed 4.6%. The company reported that their net profit had climbed by 80% from February to April.

Money markets, on the other hand, were pricing in a rate hike from the ECB of about 75 basis points by September, as last month’s inflation numbers had reached a record high. So far, the central bank has said that it would begin increasing interest rates from July and rises of 25 basis points had been priced in earlier. Analysts said that the ECB cannot increase the rate by 50 basis points in July as this would result in a lot of uncertainty. But, there appears to be a slowdown in the markets because of tightening monetary policies, rising inflation and uncertainty because of the Russia-Ukraine conflict.

There has been a bit of a boost from the easing curbs in China, which is the second-largest global economy, but there are still concerns about the country’s zero-COVID strategy. Market strategists said that with the real spending power of consumers under pressure, there could be supply issues because of China’s policy. On Wednesday, new data showed that industrial production in Germany had made a recovery from losses, but did not increase as much as expected. Wizz Air saw a fall of 5.5% after a bigger annual loss than expected.

The European budget airline is suffering because of rising fuel costs and added that extra resources were being deployed to mitigate problems because of supply-chain snags and staff shortages. There was also a 10.8% jump in Kindred, as the Swedish online gaming firm reported that the Netherlands had granted it a gambling license. Until the surging inflation comes to a stop and the trend reverses, uncertainty is likely to persist in the market because the central banks will continue to hike up interest rates. This increases worries about a global recession occurring because the economy will slow down.

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