On Wednesday, European shares declined due to increasing concerns about economic growth. While the inflation seems to be reaching new highs, economic data showed that factory activity slowed down and German retail sales also turned out to be weaker than expected. There was a 1.0% decline in the STOXX 600 index, even though it had seen an increase of almost 0.4% during the start of the day. Back in May, the pan-European benchmark index had plunged by nearly 1.6% in light of worries about action from the central bank because inflation continues to climb.
Data of April showed that there was a 5.4% fall in retail sales in Germany, which was significantly higher than expected. Moreover, the last month also saw a slowdown in the growth in manufacturing activity because factories had to put up with a fall in demand, rising inflation and supply shortages. Market experts said that the declining stock prices in the market in this week highlight how much uncertainty exists about growth. On Tuesday, the European Union had published inflation figures that turned out to be higher than expected. This ended up stoking fears about another hike in interest rates.
The primary concern of the market is that the actions of the central bank could eventually lead to a recession. Economists of the Deutsche Bank have now raised their expectations about a policy tightening from the European Central Bank (ECB) and they predict that September will bring an increase of about 50 basis point in the interest rate. Real estate and travel stocks were the major losers in the decline of the STOXX 600. There was also a decline in regional bourses, with a 1.0% fall in the FTSE 100 commodity index.
Likewise, a 0.3% fall was also seem in the German DAX. This year, the STOXX 600 has only recorded losses every month with the exception of March. This was primarily because of investor concerns regarding an increase in interest rates from the central bank and the conflict between Russia and Ukraine. Oil prices are challenging the hope of investors that inflation may have reached its peak, as Tuesday saw them increase to almost $120 per barrel. This happened after the leaders of the EU came to an agreement on imposing a phased and partial ban on oil from Russia. Now, market experts will be keeping an eye out on the ECB meeting that is scheduled for 9th June, Thursday in Amsterdam.
It is expected that central bank officials will try to decide how quickly the monetary policy should be ‘normalized’. While the ECB officials agree that they need to increase interest rates, there is disagreement over how quickly it should be done. There was a 20% increase in the value of Dr. Martens, as the British footwear company forecast a high growth in its annual revenue. Higher sales of its boots and shoes, along with the price hike due to inflation helped the company. But, there was a 6.2% fall in DWS, as its CEO announced that he would be stepping down.