With confidence suffering after Federal Reserve Chair Jerome Powell mentioned the need for additional interest rate hikes at the eagerly awaited Jackson Hole Symposium, European equities lost their initial impetus on Friday. The drops in technology and financials were the main drivers of the declines.
European shares lose steam: The pan-European STOXX 600 index recorded its best week in four thanks to a chipmakers’ rise ahead of Nvidia’s quarterly reports on Wednesday and rising commodity prices, which saw the index close flat after jumping as high as 0.7% intraday.
According to Powell, rates must climb even higher to keep inflation under control, with the possibility of tightening slightly increased by interest rate futures linked to the Fed’s policy rate at both the November and December meetings.
There is no significant alteration to what was previously known. Powell largely followed the plan. To be honest, today’s speech just serves to highlight the fact that the Fed’s policy choices are undoubtedly very dependent on the availability of economic data, according to Andreas Bruckner, European equity strategist at BofA Global Research.
An increase in euro zone yields following Powell’s speech also put pressure on stocks.
Stocks in the financial services and technology industries saw the largest daily declines, falling 0.7% and 0.6%, respectively.
At 1900 GMT, the next speaker will be President of the European Central Bank Christine Lagarde.
Policymakers at the ECB are growing more concerned about the state of the economy, and while the issue is still up for discussion, there is growing support for a pause in rate increases, according to Reuters.
Data indicated that Spanish industrial prices decreased by 8.4% in July, down from a revised 8% drop in the 12 months through June. Furthermore, the deputy central bank governor of Spain stated that they anticipate a further decrease in euro zone inflation throughout the remaining period of 2023, while also noting that it will continue to remain above the 2% target for an extended period.
“German Economy Stagnant, Business Morale Declines, and European Markets Witness Mixed Movement”
Following a winter recession, the German economy remained stagnant in the second quarter compared to the prior three, while a separate survey revealed that business morale in Germany continued to decline in August for the fourth consecutive month.
However, a 0.3% increase in the energy sector, reflecting improvement in crude prices, helped prevent a drop in the benchmark STOXX 600.
Retail was the sector index’s lowest performer for the week, and utilities was its best performer.
As one of the biggest movers, Watches of Switzerland had a record-breaking one-day decline, falling 20.9% to the bottom of the STOXX 600 after Rolex acquired the store Bucherer.
The second-largest listed company in Europe, Novo Nordisk, dropped 1.1%, sliding for the second consecutive day, and as a result, the Danish benchmark index lagged other European bourses.