European Stocks Drop Sharply on Inflation, Growth Concerns

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Investing.com – European stock markets traded sharply lower Thursday as persistent U.S. inflation raised fears of aggressive Fed monetary tightening, while weak U.K. growth data hinted at a regional slowdown.

By 4:20 AM ET (0820 GMT), the DAX in Germany traded 1.9% lower, the CAC 40 in France fell 1.9%, and the U.K.’s FTSE 100 dropped 2%.

European investors digested Thursday the latest inflation data out of the U.S., as headline consumer prices rose 8.3% for the 12 months to April, remaining very close to last month’s 40-year high, prompting renewed fears about the extent of the economic damage to the world’s major growth driver created by the aggressive interest rate hikes needed to tame soaring prices.

Potential weakness in the world’s economic driver adds to the deteriorating global picture, as the war in Ukraine threatens an energy crisis in Europe and ongoing COVID lockdowns in China hit the growth potential of the world’s second-largest economy.

Evidence of the economic slowdown in Europe emerged earlier Thursday with the release of the preliminary first quarter GDP data from the U.K. Although the economy expanded by 0.8% in the first quarter, this was weaker than expected and the monthly reading for March actually dropped 0.1%.

This slowdown was reported just as the U.K. government prepares for another round of brinkmanship with the European Union over the terms of the Brexit deal negotiated by the two sides.

Also in focus Thursday will be more quarterly corporate results, with Siemens (ETR:SIEGn) stock down 4.8% after the largest industrial manufacturing company in Europe reported a halving of its net income in the first quarter as it suffered a 600 million euro hit from charges and impairments associated with Russia.

Hargreaves Lansdown (LON:HRGV) stock fell over 7% after the retail investment company reported lower net new business inflows than expected in the third quarter, while Rolls-Royce (LON:RR) stock up 0.6% after the engine manufacturer reported traded in line with expectations in the first four months of the year, helped by a gradual return to flying and increased government investment in defence. 

BMW (ETR:BMWG) stock slumped over 8% after the German auto giant’s shares traded ex-dividend, and Merck KGaA (ETR:MRCG) stock fell 4.1% despite the German chemical company predicting earnings growth of up to 9% this year as its laboratory gear business benefits from drugmakers’ efforts to explore new biotechnologies.

Oil prices slipped lower Thursday, handing back some of the previous session’s sharp gains with traders focusing once more on a cocktail of concerns, including global recession fears, the strongest U.S. dollar in two decades, and prolonged COVID-19 lockdowns in China, the world’s top crude importer.

The market rose around 5% on Wednesday after Russia placed sanctions on some European gas companies, responding to the punishments imposed on Moscow for its invasion of Ukraine in February.

By 4:20 AM ET, U.S. crude futures traded 2.2% lower at $103.34 a barrel, while the Brent contract fell 1.7% to $105.69.

Additionally, gold futures fell 0.2% to $1,850.46/oz, while EUR/USD traded 0.5% lower at 1.0457.