Recession concerns keep pressure on European equities; Italy underperforms

The DAX chart of the German stock price index is pictured on the stock exchange in Frankfurt, Germany, July 11, 2022. REUTERS/Staff

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  • Italy’s MIB index drops 2.2% on political worries
  • Hugo Boss results drive gains in some luxury stocks
  • TSMC results lift chipmakers

July 14 (Reuters) – European stocks fell on Thursday as growing bets on more aggressive rate hikes from the Federal Reserve fueled recession fears, while Italy’s main index fell 2 .2% as the country’s government faces collapse.

The pan-European STOXX 600 index (.STOXX) fell 0.7% as losses were broad-based. It had fallen 1% on Wednesday when US inflation hit a nearly 41-year high, prompting bets that the Fed could opt for a bigger hike than markets by 75 basis points n had planned this month. Read more

Global equities have been hit hard this year as central banks try to rein in soaring inflation, leaving investors worried about the impact on economic growth. The STOXX 600 is down around 16% so far this year, while the S&P 500 (.SPX) and a gauge of global stocks (.MIWD00000PUS) are down around 20% each.

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“There is a fear of recession that continues to be at the forefront of investors’ minds,” said Bert Colijn, senior eurozone economist at ING.

But he adds that concerns also stem from a wider gap between the European Central Bank and the Fed, with the former expected to stick to a 25 basis point hike next week despite inflation at record highs.

Energy (.SXEP), banks (.SX7P) and miners (.SXPP) were among the biggest drags on the STOXX 600, while defensive sectors such as healthcare (.SXDP), telecommunications (. SXKP) and real estate (.SX86P) between 1% and 2.3%.

Meanwhile, a euro at par with the dollar is seen as more problematic for eurozone inflation. Read more

At the ECB meeting next week, investors will be watching comments on the falling euro and its tool to control the widening of eurozone bond spreads as well as inflation forecasts and indices on the future. extent of future increases. Read more

Italy’s MIB Index (.FTMIB) edged closer to its lowest since November 2020 after the 5 Star Movement said it would not take part in a parliamentary vote of confidence later in the day, a move that seemed likely to trigger the collapse of Prime Minister Mario Draghi’s government. Read more

Italian bond yields rose sharply, widening spreads with their German counterparts.

“There will be conditionality involved in (the ECB’s anti-fragmentation tool), which means that countries will probably have to do something before the ECB intervenes in the markets to keep spreads at acceptable levels” , said ING’s Colijn. .

In terms of earnings, some luxury stocks rose after German fashion house Hugo Boss (BOSSn.DE) jumped 3.7% as it raised its outlook for 2022.

Chipmakers rose after Taiwan’s TSMC (2330.TW) forecast revenue growth that could be the strongest in 10 quarters. Read more

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Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich and Krishna Chandra Eluri

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