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  • Writer's pictureanalysiswatch

Title : European shares drop as policymakers seek to tame hot inflation

Aug 29, 2022 04:35AM ET

By: AnalysisWatch

European stocks fell on Monday, while bond yields rose, as comments from central bank policymakers fueled concerns about aggressive anti-inflationary measures in the face of growing recessionary risks.The STOXX 600 index fell 0.9% to a more than one-month low, with interest rate-sensitive tech stocks falling 1.8%.

German 10-year bond yields rose 10 basis points (bps) to a two-month high. Over the weekend, European Central Bank (ECB) board member Isabel Schnabel warned that central banks must act forcefully to fight inflation, even if it means dragging economies into recession, while Governing Council member Francois Villeroy and head of monetary policy Martins Kazaks hinted at another significant rate hike in September.

Their comments came after Fed Chairman Jerome Powell warned on Friday that the U.S. central bank would raise rates as much as necessary to restrain growth and hold them "for some time."

Markets are pricing in a two-thirds chance that the ECB will raise rates by 75 basis points in September, up from 24% last week.

August consumer price index figures, to be released on Wednesday, are likely to show that inflation in the euro area remains uncomfortably high.

The volatility gauge for eurozone stocks, known as the "European fear index," hit a six-week high of 29.4.

Stocks are headed for a nearly 3% drop in the next two sessions as the combination of big rate hikes to cool runaway eurozone inflation, the looming recession, and the energy crisis weighs on sentiment.

After almost completely erasing June's decline, the STOXX has lost almost 4% so far in August.

Among stocks, one of the few gainers was French drugmaker Valneva, which rose 0.9% on the back of positive late-stage trial results for its COVID-19 injection.

Real estate stocks, among the sectors considered "defensive" or safer bets in times of economic uncertainty, recorded the smallest losses amid a generalized sell-off in the STOXX 600.

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