European stocks fell 2.7% on Friday after U.S. inflation data turned hotter than expected, raising the prospect of a recession as central banks try to contain prices .
Headline inflation in the United States for May came in at 8.6%, beating the 8.3% expected, suggesting the Federal Reserve could continue with interest rate hikes of 50 basis points until in September to fight inflation. The Fed’s stance on inflation at its meeting next week will be closely watched.
Shares were hammered on Thursday after the European Central Bank announced it would make its first interest rate hike since 2011 next month, and a potentially bigger move in September.
The Iseq index fell 3.6% in a negative weekend as investors digested economic data and the impending tightening of monetary policy in the eurozone. Bank of Ireland was one of the biggest percentage declines, plunging 7.6% to €6.05 at the close, while BAI fell nearly 3.9% to €2.40 as bank stocks across Europe lost ground.
Building Materials Group HRC fell 6.1% to €35.28 amid gloomier sentiment, while the owner of Paddy Power Flutter Entertainment ended down 4.8% at €100.80. It was also a weak session for Ryanairwhich loses 3.5% to €12.84, and the packaging group Kappa Smurfwhich slipped 3.7% to €34.73, while Dalata Hotel Group lost 2.9% to close at €4.23.
One of the only notable winners is the agro-services group Originating companieswhich added 6.3% to end at €4.64 on the day it recorded revenue growth of more than 50% for the nine months to the end of April, despite reduced volumes in Ireland and Britain .
UK stocks fell after US inflation data heightened investor fears of aggressive rate hikes, while GSK rose as its respiratory vaccine passed a late-stage trial for the elderly .
The blue-chip FTSE 100 index fell 2.1%, recording its worst session in a month, while the nationally-focused FTSE 250 index fell 2%. Mining stocks, down 5.6%, dragged the index down as industrial metals fell after renewed Covid-19 restrictions in China rekindled demand concerns.
The Bank of England is set to hike rates for the fifth time since December next week as inflation nears 10%, the worst cut in the cost of living in decades and planned strikes threaten a summer of discontent.
GSK rose 1.6% after the drugmaker said its respiratory syncytial virus vaccine was successful in a late-stage trial involving adults aged 60 and over.
Losses on the pan-European STOXX 600 index were widespread but were led by a 4.8% drop in banks. Italy’s MIB index fell 5.2% to its lowest level in three months. Spain’s IBEX fell 3.7%, while other major exchanges in the region lost more than 2% each.
Banks, which were already suffering heavy losses from peripheral lenders such as those in Italy, accelerated the losses on fears of widening spreads between bond yields in Italy and Germany.
Regional airlines fell as labor disputes in Europe raised fears of more travel problems during the busy summer season, with German carrier Lufthansa falling 4.5%.
US stock indexes fell in early trading as consumer prices rose more than expected in May, dashing hopes of inflation peaking and stoking concerns about more aggressive moves by the Federal Reserve to tame it .
All 11 major S&P sectors traded lower. Mega-cap shares Microsoft and Apple fell 3.3% each, dragging the indexes lower, while Netflix slipped 4.4% after Goldman Sachs analysts downgraded the streaming giant’s shares for “sell” them from “neutrals”.
Additional reports: Reuters