Europe stocks gain as ECB holds emergency meeting after selloff

Bloomberg

European stocks rallied after their longest slump since March 2020 as the European Central Bank (ECB) announced an emergency meeting “to discuss current market conditions” and ahead of the Federal Reserve rates decision.
The Stoxx Europe 600 rises 1.1% at 9:45 am in London. Italy’s FTSE MIB index was up 3%, led by banks, while Italian bonds surged and the euro rose, amid speculation the ECB could give details on how it plans to keep bond yields of the region’s most vulnerable members in check as it winds back stimulus. The ECB meeting comes after the yield on Italy’s 10-year debt rose above 4% for the first time since 2014 earlier this week.
Bloomberg reported ECB officials will be invited to sign off on reinvestment of bond purchases conducted under now-halted pandemic emergency program.
The European equities benchmark has been hammered this year as worries of hawkish central banks and a potential recession dent demand for risk assets, despite stock valuations falling well below their long-term averages. However, the European stock market’s breadth — the number of shares participating in the latest drop — has yet to see signs of panic selling, especially compared with the last two dips in 2020 and March 2022.
European stocks came under pressure last week after the ECB committed to a quarter-point increase in interest rates next month and signalled a
bigger hike in the fall.
Investors are “welcoming the fact ECB is willing to keep stability in credit markets, ahead of withdrawing stimulus measures in euro area,” said Pierre Veyret, a technical analyst at ActivTrades. “The fact market drivers may already be changing is perceived as a major development for EU stock investors.”
In the US, the Federal Open Market Committee is expected to raise rates 75 basis points by Wall Street firms including Goldman Sachs, JPMorgan and Barclays, who cite rising inflation expectations among Americans in looking for largest increase in nearly three decades.
“75 basis points for sure is coming,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners Pty Ltd. “You don’t want inflation to be built into the economy and then have secondary inflationary impact so go early, go hard and send the signal,” she said in an interview with Bloomberg Television, adding that a lot has already been priced into markets.
Meanwhile, Credit Suisse Group AG strategists including Andrew Garthwaite cut European stocks to benchmark from small overweight as risks including hawkish central banks and the likelihood of a recession weigh on stocks. At the same time, Sanford C. Bernstein strategists said stock markets may have become too pessimistic about corporate earnings despite gloomy outlook for global economy. Among individual movers, Hennes & Mauritz falls 3.8% as uncertainty about margin outlook and ongoing cost pressures overshadowed apparel retailer’s
second-quarter sales beat.

“The rising yield environment will continue to put pressure on valuations,” said Roger Lee, head of UK strategy at Investec. “The only protection on a relative basis is in ‘value’ strategies which continue to outperform, namely natural resources, financials, especially banks, and defensive sectors.”
Among individual movers, Hennes & Mauritz AB fell 3.8% as uncertainty about the margin outlook and ongoing cost pressures overshadowed the apparel retailer’s second-quarter sales beat. Meanwhile, Getinge AB tumbled 16% after the medical technology firm lowered guidance, projecting flat organic sales growth for the year.