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Title : Banks lift European bourses as rate hike, recession fears grow

Aug 30, 2022 04:37AM ET

By: AnalysisWatch

European stocks rose on Tuesday after two days of declines, as banking stocks boosted bourses on expectations of rising interest rates, although fears about the growing energy crisis and looming recession kept gains at bay.

The pan-European STOXX 600 index rose 1.0% aftter a sell-off of nearly 2.5% in the past two sessions, boosted by a hawkish tone from European Central Bank (ECB) spokespeople and U.S. Federal Reserve Chairman Jerome Powell, who raised rate expectations.

Banking stocks, which typically benefit from a higher interest rate environment, rose 2.2 after traders took for granted the possibility of a 75 basis point hike at the ECB's Sept. 8 policy meeting. [ECBWATCH]

"Several ECB officials spoke in favor of rate hikes, but what matters most is whether markets are confident that the ECB will significantly tighten monetary policy despite all the adversity," said Commerzbank analyst Esther Reichelt.

"With an eye on the coming winter and the threat of an energy crisis, investors are likely to remain understandably cautious," Reichelt added.

On Monday, ahead of the shutdown, German Economy Minister Robert Habeck said the country faces the "bitter reality" that Russia will not restore gas supplies to Germany. Separately, several Italian newspapers reported on Tuesday that Berlin was willing to consider a price cap for gas.

The DAX rose 1.6% to move away from six-week lows.

Meanwhile, Spain's IBEX rose 1.1%. Preliminary data showed that Spanish domestic consumer prices rose 10.4% y-o-y in August, down from 10.8% in the previous month.

Among individual stocks, shares of Sanofi rose 1% after the U.S. Food and Drug Administration granted priority review to a drug on which the company and Sweden's SOBI are collaborating. SOBI also added 1.0%.

Gazprom has informed Engie that it will reduce its gas deliveries from Tuesday due to a disagreement between the parties, the French company said. Engie shares were up 1.1% in early trading.

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