European stocks fall as investors weigh inflation, Fed risks

Bloomberg

European stocks retreated as investors braced for tomorrow’s expected Federal Reserve policy tightening and weighed the impact of soaring inflation on economic growth.
The Stoxx Europe 600 slumped 2% at 8:56 am in London. Miners fall the most, with commodities retreating as coronavirus outbreaks in China threaten to disrupt the country’s economic recovery. Consumer products and services as well as technology shares underperformed.
European stocks have been under pressure this year as investors fret over surging inflation and hawkish central banks. The war in Ukraine exacerbated the selloff in equities as it sent commodity prices soaring while dimming prospects for growth in the region. Investors are now awaiting the Federal Reserve’s expected rate liftoff on Wednesday.
“European markets are clearly pricing in very negative scenarios already,” said Esty Dwek, chief investment officer at Flowbank SA. “The duration of the conflict and ongoing impact on the euro zone remain up in the air, so growth and inflation questions are likely to persist for some time.”
The war in Ukraine has led to a “historic collapse” in European growth expectations, with regional investors dumping banks and financial stocks in favour of cash and defensive sectors, according to Bank of America Corp.’s March European fund manager survey. A net 18% of global investors say they are underweight European equities, compared to a net 30% who said they were overweight last month.
Meanwhile, history suggests European stocks could be poised for further outflows after investors sold a record amount of the region’s equity funds for a second consecutive week, Sanford C. Bernstein strategists including Mark Diver wrote in a note.
Investors are also concerned about the impact lockdowns in China will have on global growth. The recent spike in infections “has led to concerns that there could be further supply chain disruptions and that China’s economic growth could flatline in the first quarter,” Richard Hunter, head of markets at Interactive Investor, said.