European Stocks Sharply Lower; German State Inflation Weighs

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European Stocks Sharply Lower; German State Inflation Weighs
Credit: © Reuters.

By Peter Nurse

Investing.com - European stock markets weakened Thursday as surging German inflation increased concerns of more aggressive monetary policy tightening, while the boost from the Bank of England’s invention faded.

By 03:45 ET (07:45 GMT), the DAX in Germany traded 1.7% lower, the CAC 40 in France fell 1.7%, and U.K.’s FTSE 100 dropped 2.2%.

Investors have been rattled in recent weeks by soaring bond yields, as central bankers raised interest rates substantially to contain red-hot inflation, potentially tipping the global economy into recession.

The European Central Bank has increased its benchmark interest rate by a combined 125 basis points over its last two meetings, and more hikes look likely after inflation in Germany’s most populous state, North Rhine Westphalia, registered its biggest jump since the early 1950s, climbing 10.1% year-on-year in September.

The Bank of England had stepped in on Wednesday, after a run on the pound , announcing that it would start buying long-dated bonds, on a temporary basis, in order to calm the market chaos.

However, the relief attached to that move hasn’t lasted long as the European economic outlook remains extremely uncertain, especially given the region’s ongoing energy crisis as winter approaches.

Sweden's coast guard has discovered a fourth gas leak on the damaged Nord Stream pipelines, a spokesperson said Thursday.

The European Union suspects sabotage was behind the leaks on the pipelines carrying gas from Russia to Europe and has promised a "robust" response to any intentional disruption of its energy infrastructure.

In corporate news, Next (LON: NXT ) stock slumped over 9% after the U.K. clothes retailer issued its second profit warning this year as soaring inflation holds back discretionary spending.

H&M (ST: HMb ) stock fell 4.7% after the retail giant announced an 86% drop in operating profit in the three months through August, hit by its exit from Russia and higher costs.

Additionally, Porsche (F: P911_p ) shares debuted on the Frankfurt Stock Exchange on Thursday, with owner Volkswagen (ETR: VOWG_p ) hoping to raise about 9.4 billion euros ($9.1 billion) in one of the largest European initial public offerings.

Oil prices weakened Thursday, weighed by a stronger dollar and after Hurricane Ian failed to significantly damage the Gulf’s crude facilities as it landed in Florida.

Both benchmarks had rebounded around 4% over the prior two sessions after reaching nine-month lows this week as Hurricane Ian threatened to disrupt supply in the Gulf of Mexico. The Category 4 hurricane has hit the state of Florida, unleashing drenching rains and threatening extensive flooding, but has since diminished significantly.

By 03:45 ET, U.S. crude futures traded 1.7% lower at $80.78 a barrel, while the Brent contract fell 1.7% to $86.57.

Additionally, gold futures fell 1.2% to $1,649.75/oz, while EUR/USD traded 1% lower at 0.9639.

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