European stocks in disarray as recession worries rise

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The DAX chart of the German stock price index is pictured on the stock exchange in Frankfurt, Germany, September 22, 2022. REUTERS/Staff

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  • CS shares hit record high after cash call announcement
  • The euro zone is likely to enter a recession – Flash PMI
  • German stocks hit November 2020 lows
  • The STOXX 600 lost 4.4% over the week

Sep 23 (Reuters) – European energy and materials stocks fell nearly 6% on Friday, pushing a broader index of regional stocks nearly two years ahead as dismal eurozone data pointed to a economic slowdown, adding to concerns over hawkish moves by the central bank.

UK stocks (.FTSE) fell 2%, with further losses capped by a 3% fall in the pound after UK Finance Minister Kwasi Kwarteng announced a series of tax cuts and measures to to stimulate growth.

The pan-European STOXX 600 index (.STOXX) fell 2.3%, taking weekly losses to 4.4% – its worst week since mid-June.

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A survey showed that the slowdown in business activity in the eurozone has worsened this month, likely entering recession as consumers rein in spending amid a slump in the cost of living. Read more

Europe’s largest economy, Germany, saw its main index (.GDAXI) hit its lowest since November 2020, down 2.0%.

“Given the downside risks and the high degree of uncertainty, everything points to a contraction in economic activity in the euro zone over the coming quarters,” said economists at ODDO BHF, adding that Germany could already be in recession by the third quarter.

Europe is heading for a tough winter as doubts over energy supplies point to bleak prospects for a recovery in economic activity. Add to that the European Central Bank’s clear focus on controlling inflation, another 75 basis point hike in October is “definitely” on the table, says ING’s chief eurozone economist , Bert Colijn. Read more

The STOXX 600 is down 20% for the year. It is also around 20% of the records reached in January.

Interest rates rose sharply throughout the week, with the Fed making its third consecutive hike of 75 basis points and Switzerland exiting the era of negative interest rates on Thursday. The Bank of England raised rates by 50 basis points. Read more

As oil prices fell 5% on demand fears, BP, TotalEnergies (TTEF.PA) and Shell (SHEL.L), (.SXEP) weighed the most on the STOXX 600, down between 4.9% and 7%. The mining index (.SXPP) recorded its worst session in five months as metal prices fell.

All major sectors were well in the red. Banks (.SX7P) fell 3.6%, with Credit Suisse (CSGN.S) losing 12.4% to a record high.

The Swiss bank has been canvassing investors for fresh money, Ources said, approaching them for the fourth time in about seven years as it attempts a sweeping overhaul of its investment bank. Read more

Still, the banking index in Europe is expected to significantly outperform the benchmark STOXX 600 in September on sector bets benefiting from a high interest rate environment.

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Reporting by Susan Mathew, Shreyashi Sanyal and Johann M. Cherian in Bengaluru; Editing by Savio D’Souza, Subhranshu Sahu and Angus MacSwan

Our standards: The Thomson Reuters Trust Principles.

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