FX.co ★ European stocks collapse after previous rise

European stocks collapse after previous rise

On Thursday, key European stock indices declined dramatically by 1.5-1.6% after a sharp growth the day before.

At the time of writing, the STOXX Europe 600 index of Europe's leading companies decreased by 1.43% to 383.86 points.

The French CAC 40 sank by 1.52%, the German DAX fell by 1.59%, and the British FTSE 100 lost 1.58%.

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European stocks collapse after previous rise

Top gainers and losers

The stocks of Belgian retailer Etablissementen Franz Colruyt NV plunged by 20.9%.

The shares of British clothes retailer Next fell by more than 9%. Earlier, the company's management announced that in the first fiscal half of 2022 it received less revenue than expected and downgraded its annual forecast amid skyrocketing inflation in the country.

The market capitalization of Swedish retail giant H&M decreased by 4.7% due to the report on a 86% drop in operating profit to $46.4 million in the third fiscal quarter. The main reason why the second-largest clothes store chain in Europe incurred huge losses was shutting down its business in Russia.

On Thursday, the shares of luxury car maker Porsche AG rose steadily amid the debut of the Frankfurt Stock Exchange. The company's owner, German carmaker Volkswagen, plans to raise about $9.1 billion in one of the largest IPOs in Europe.

Market sentiment

On Thursday, the European stock market participants expect preliminary data on consumer prices in Germany, fearing more tightening of the monetary policy by the local regulator. Market experts forecast that by the end of September annual inflation accelerated to 9.4% from 7.9% in August.

In September, investors in Europe focused on rapid growth of bond yields amid ECB record increase of interest rates. Global stock market participants are worried that this situation could trigger a recession in the EU economy.

Investors' fear of a recession caused by monetary policy tightening canceled out the recovery that was observed in European stock markets during the summer.

Notably, at its September meeting, the European Central Bank raised the main base rate on loans to 1.25%, the rate on deposits to 0.75%, and the rate on marginal loans to 1.5%. At the same time, the discount rate was increased immediately by 0.75% for the first time in history.

The day before, speaking at an event in Frankfurt, European Central Bank President Christine Lagarde said that the regulator would raise interest rates at the next meetings.

Analysts predict that the ECB will raise rates by another 75 basis points during its October and December meetings

On Thursday, mass media reported that Sweden's coastguard discovered a fourth gas leak in the damaged Nord Stream pipeline.

EU officials suspect sabotage is the reason for the leaks at Russian pipelines. Earlier, the EU promised a robust response to any deliberate disruption of energy infrastructure.

On Tuesday, representatives of Russia's energy giant Gazprom announced that they would seek to have Ukrainian gas pipeline operator Naftogaz Ukraine added to the list of entities against which Russia had imposed sanctions. Analysts predict that this will lead to the termination of almost all remaining gas supplies to EU countries.

In recent months, the prospects of declining energy supplies to Europe are one of the key reasons for the deepening economic crisis in the euro area.

Previous trading results

On Wednesday, European stock indices closed in the green zone. The key reason for the rise in the European stock market was the Bank of England's statement on the start of the purchase of long-term British government bonds. The day before, investors returned to more risky assets.

The STOXX Europe 600 index of Europe's leading companies rose by 0.3% to 389.41 points.

The French CAC 40 gained 0.19%, the German DAX gained 0.36%, and the British FTSE 100 rose by 0.3%.

The shares of Norwegian fish companies SalMar ASA and Mowi ASA plummeted by 30% and 19.1% respectively.

The stocks of Dutch supermarket operator Royal Ahold Delhaize NV sank by 0.3%. Earlier, the company's board of directors announced its plans to propose to shareholders to reappoint Chief Executive Officer and Chairman of the Board Frans Muller for another term.

The market capitalization of British fashion house Burberry Group Plc increased by 5.5% after the news broke that the company's chief creative officer Riccardo Tisci would resign at the end of this month. Former Bottega Veneta creative director Daniel Lee will take his place.

The shares of German industrial group Thyssenkrupp AG dropped by 11.3% after analysts of US financial conglomerate JPMorgan confirmed that the rating of the company's securities was below the market.

The stocks of British online fashion retailer Boohoo plunged by 11.7% after the company downgraded its forecasts for 2002 amid rising inflation-linked costs and slumping sales.

The shares of German pharmaceutical company MorphoSys AG soared by 20% on promising data from clinical trials of a drug for Alzheimer's disease.

Earlier, the representatives of the British regulator announced that it would start to buy bonds with long maturities (from 20 years) on a temporary basis from September 28, to restore calm in the financial markets. In response to this news, the pound sterling as well as European stocks began to rise steadily.

Notably, on Tuesday, the British currency and the US dollar updated their all-time lows. Meanwhile, 10-year British government bonds yields rose during trading to 4.246%, the highest level since 2008. Expectations of tax breaks in the UK caused these anti-records.

Last week, new British finance minister Kwasi Kwarteng announced significant tax cuts which would affect individuals and businesses and increase the budget deficit in 2022 fiscal year by more than 70 billion pounds.

On Wednesday, European investors focused on weak Germany's macroeconomic data. According to the GfK research company, the consumer confidence index dropped to minus 42.5 points in October from minus 36.8 points in September. Fears are rising that skyrocketing inflation caused by reducing Russian gas supplies will lead to a drop in income. Consequently, the composite leading indicator of October has again updated the record low for the fourth month in a row. Moreover, analysts forecasted on average a less significant decline to minus 39 points.

According to the National Institute of Statistics and Economic studies Insee, French consumer confidence fell in September to 79 points from 82 points in August. Thus, the final value of the index coincided with the historical low of May 2013 and July 2022. At the same time, economists on average predicted the reduction of the consumer confidence index in France's economy to only 80 points.

On Wednesday, negative dynamics of major stock indices in the Asia-Pacific region and the United States exerted considerable pressure on European stock markets. Thus, Hong Kong's Hang Seng index updated its lows for 13 years. At the same time, on Tuesday, the Dow Jones Industrial Average fell by 0.43%, reaching a 52-week low. Meanwhile, the S&P 500 was down 0.21%.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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