European stocks hover near March 2021 lows on inflation jitters

(Bloomberg) – European stocks traded near their lowest level in more than a year as investors remained worried about aggressive central bank policy tightening amid stubbornly high inflation.

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The Stoxx Europe 600 index was little changed at 9:18 a.m. in London after falling to its lowest level since March 2021 on Monday. Banks led the advance as rate-sensitive sectors outperformed after falling Treasury yields. Insurance and energy stocks also rose, while real estate fell.

READ: Stagflation fears a surge and ‘sentiment is dire’ in BofA survey

“The outlook is still shrouded in weakness and uncertainty in my view, so I don’t think we’ve seen the bottoms in equities yet,” said James Athey, chief investment officer at abrdn.

Europe’s benchmark has taken a beating this year as concerns from hawkish central banks and a possible recession weighed on demand for risky assets, despite stock market valuations well below their long-term averages.

After the European Central Bank charted a slightly more aggressive path last week than economists had expected, the focus this week is on the Federal Reserve’s policy meeting. Bets are rising on the central bank given its biggest interest rate hike since 1994.

“Just two days ago, I never imagined for a second that we would be seriously talking about a 75 basis point hike at the Fed meeting this week, but in one session the market is there. happened and with the Fed out of power, they can’t back down even if they want to,” Athey said. “Their dilemma is that if they don’t do 75 basis points tomorrow, they risk an accommodating shock and make their jobs more difficult in the future.”

Investors believe hawkish central banks are the biggest risk to European equities, followed by the global recession and then inflation, according to Bank of America Corp’s June survey. on fund managers for the region, in which respondents’ global growth expectations have fallen to all-time lows.

For Louise Dudley, global equity portfolio manager at Federated Hermes, relative safe havens amid inflation jitters include “names with stable dividend policies, value in healthcare, energy and also some of the consumer staple companies that are holding up given the price elasticity for strong brands, their ability to mitigate supply chain issues and the current strong market conditions. »

Among individual movers, Atos SE fell 27% after saying it was considering a major restructuring, alongside the departure of CEO Rodolphe Belmer. Shares of Akzo Nobel NV headed for their longest losing streak in three months after the company cut its second-quarter guidance, in part due to lockdowns in China.

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