On Wednesday, key European stock indices declined after a short-term growth the day before.
By the time of writing, the STOXX Europe 600 index of Europe's leading companies decreased by 1.69% to 381.66 points.
The French CAC 40 was down 1.46%, the German DAX fell by 1.32%, and the British FTSE 100 lost 1.46%.
At the same time, experts believe the main reason for the fall of the British FTSE 100 is the dramatic decline in the bank stocks as well as oil and mining companies. An additional catalyst for the market pessimism was criticism by the International Monetary Fund (IMF) and rating agency Moody's of the tax reduction plan provided by the British authorities.
The IMF representatives made it clear that in the current economic situation the UK fiscal policy should not oppose the monetary policy of the country.
Meanwhile, Moody's experts warned that unjustified large-scale tax cuts would have negative consequences for the UK credit rating.
Top gainers and losers
The shares of Norwegian fish companies SalMar ASA and Mowi ASA plummeted by 27.5% and 19.2% respectively.
The stocks of Dutch supermarket operator Royal Ahold Delhaize NV sank by 0.6%. 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 3.4% 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 12.1% 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.
Market sentiment
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 low 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%.
On Wednesday, speaking at an event in Frankfurt, European Central Bank President Christine Lagarde said that the regulator would raise interest rates at the next meetings.
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.
Meanwhile, analysts predict that the ECB will raise rates by another 75 basis points during its October and December meetings.
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.
The day before, the energy conflict between Russia and the EU escalated again after the Nord Stream 1 and 2 pipelines were damaged as a result of an alleged sabotage.
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 Tuesday, European stock indices closed in the red zone for the fourth day despite a dramatic increase at the start of the trading session.
The STOXX Europe 600 index of Europe's leading companies dropped by 0.13% to 388.24 points.
The French CAC 40 was down 0.27%, the German DAX lost 0.72%, and the British FTSE 100 fell by 0.52%.
The stocks of Italian Nexi SpA, specializing in payment solutions, rose by 2.7%. Earlier, its management announced that it expected to receive a free cash flow of 2.8 billion euros from 2023 to 2025. The proceeds will be used for M&A deals and share buyback.
The shares of German energy company Uniper SE soared by 10.6%.
The market capitalization of Swiss online pharmacy chain Zur Rose Group AG rose by 6.7%.
The shares of British Admiral Group PLC, which specializes in auto insurance, decreased by 6%.
The stocks of Bank of Cyprus Holdings collapsed by 10%. The day before, the news broke in mass media that private equity fund LSF XI Investments LLC had no plans to improve its offer to buy the bank.
Stocks of British financial company Close Brothers Group Plc fell by 10.8%.
The market capitalization of Dutch meal delivery service Just Eat Takeaway.com soared by 11.7%.
On Tuesday, European investors analyzed the outcome of the US Federal Reserve's September monetary policy meeting published last week. Market participants are afraid of both global and eurozone recession in particular after the US regulator's hawkish decisions.
Last Wednesday, the US central bank raised its key rate range by 75 basis points to 3-3.25%, the highest level since 2008.
The Fed also lowered its forecasts for US gross domestic product and raised its estimates of inflation and unemployment for 2022-2023. Moreover, US Central Bank officials said they would continue to reduce their holdings of Treasury and mortgage-backed securities and agency debt. The latest news from the US Federal Reserve gave investors an idea of the future prospects of the interest rate in the face of a permanently rising inflation rate.
Notably, the US Federal Reserve already raised its key rate by 25 basis points in March 2022. Moreover, it raised the rate by 50 and 75 basis points in May and in June respectively.
Moreover, at the end of last week, the Bank of England raised the discount rate by 0.5%. It was the seventh consecutive increase in the rate.
As part of its September meeting, the British regulator also adjusted its next steps in monetary policy according to the measures of Liz Truss's new cabinet to limit energy prices.
Notably, the Bank of England representatives predicted at the August meeting that inflation in the country would peak at 13.3% by the end of 2022. Then the UK will plunge into recession and it will not end until early 2024.
On Thursday, the Swiss central bank hiked rates by 75 basis points to 0.5%. The September rate hike was the second in a row: in June it was increased by 50 basis points to minus 0.25%. Consequently, the inflation rate in Switzerland was at its highest point in the last thirty years, i.e. 3.5% year-on-year.
Therefore, global central bank decisions on monetary policy in September 2022 turned out to be among the most aggressive in the past years.
On Tuesday, stock market participants in the EU were closely monitoring the exchange rate of the British pound and government bonds. The day before, 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.
