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European stocks close extremely lower

On Friday, key European stock indices declined more than 1%. The stock market has been in the red zone for the eighth consecutive session. Investors continue to analyze the Fed and other global regulators’ hawkish monetary policy decisions.

At the time of writing, the STOXX Europe 600 index of Europe’s leading companies fell by 0.82% to 396.48 points.

Meanwhile, the French CAC 40 was down 1.11%, the German DAX dropped by 1.33% and the British FTSE 100 lost 1.73%.

Top gainers and losers

The value of the securities of the German automobile concern Volkswagen AG fell by 2%. On the eve, the company’s management said that it did not rule out the possibility of moving production from Germany and Eastern Europe amid growing gas shortages in the region.

Quotes from Swiss bank Credit Suisse plummeted 7.8% on reports that the company may again turn to investors for new cash in order to radically overhaul its investment bank.

The market capitalization of Norwegian metals company Norsk Hydro fell 1.3%. Even the statement of the company’s management about the beginning of a securities buyback program totaling $192.2 million did not support quotations. The program is scheduled to start on September 26, 2022, it will last until September 20, 2023.

Market sentiment

On Friday, European investors continue to analyze the results of the U.S. Federal Reserve’s September monetary policy meeting published the day before. Market participants are afraid of recession in the whole world as well as in Europe in particular after the hawkish decisions of the American regulator.

On Wednesday, the US central bank raised its key rate range by 75 basis points to 3-3.25%, the highest since 2008.

The Fed also lowered its forecasts for US gross domestic product and raised its estimates of inflation and unemployment for 2022-2023. Moreover, US Central Bank officials said they will continue to reduce their holdings of Treasury and mortgage-backed securities and agency debt. The latest news from the US Federal Reserve gave investors an idea of the future prospects of the interest rate in the face of a permanently rising inflation rate.

As a reminder, the US Federal Reserve already raised its key rate by 25 basis points in March 2022, by 50 in May and by 75 in June.

On Thursday, the Bank of England raised the discount rate by 0.5 percentage points, the seventh consecutive increase in the rate.

As part of its September meeting, the British regulator also adjusted its next steps in monetary policy to take into account the measures of the new government of Liz Truss to curb energy prices.

Recall that at the August meeting, representatives of the Bank of England predicted that inflation in the country will peak at 13.3% by the end of 2022, after which the UK will plunge into recession and not come out of it until early 2024.

On Thursday, the Swiss central bank announced a 75 basis point interest rate hike to 0.5% per year. The September rate hike was the second in a row: in June it was increased by 50 basis points – to minus 0.25% per annum. As a result of August, the inflation rate in Switzerland was at its highest point in the last thirty years – 3.5% per annum.

Recall that earlier in September the European Central Bank raised the basic rate on loans to 1.25% per annum, the rate on deposits to 0.75%, and the rate on marginal loans to 1.5%. At the same time, the discount rate increased immediately by 0.75 percentage points for the first time in history.

In addition, members of the Central Bank noted that the regulator intends to continue raising the rate in the upcoming meetings. Thus, ECB President Christine Lagarde said that further pace of interest rate hikes will depend on statistical data.

Thus, global central bank decisions on monetary policy in September 2022 were among the most aggressive in a generation.

An important factor of pressure on the European stock market on Friday was also weak EU and UK statistics. According to preliminary data from the American information media holding S&P Global, the composite PMI of the European Union in September fell to 48.2 points from 48.9 points in August.

For the last three months, the Euro-region PMI has been balancing below the 50 level, which is the line between contraction and expansion. Meanwhile, the risk of recession in the euro-area economy has reached its highest level since July 2020.

Meanwhile, the manufacturing index fell to 48.5 in the outgoing month from 49.6 points in August, and the services sector fell to 48.9 from 49.8 points.

Germany’s composite PMI in September slipped to 45.9 points from August’s 46.9 points. In France, the indicator rose to 51.2 points from 50.4 points.

According to GfK NOP, Ltd., the U.K. consumer confidence index fell 5 points to minus 49 points in the month, its lowest level in the history of calculations since 1974.

However, Friday was not without positives. Thus, Spain’s economic growth accelerated to 1.5% in the second quarter of 2022 from the previous 1.1%.

Thus, the current macroeconomic outlook in Europe remains gloomy amid disruptions in energy supplies, a protracted conflict between Russia and Ukraine, as well as a permanent rise in energy and food prices.

Previous trading results

On Thursday, European stock indices closed in the red zone.

The STOXX Europe 600 index of Europe’s leading companies fell by 1.79% to 399.76 points.

The French CAC 40 declined by 1.87%, the German DAX lost 1.84%, and the British FTSE 100 was down 1.08%.

The value of securities of the Finnish energy giant Fortum Oyj soared by 7.9%.

The quotations of the Swiss bank Credit Suisse Group AG sank by 5.5%. The day before, the British media wrote that the financial institution plans to split its investment banking into three businesses and sell profitable divisions to prevent the damage caused by capital gains.

The market capitalization of French hotel chain Accor S.A. plummeted 6.9 percent after U.S. financial conglomerate J.P. Morgan downgraded the company’s stock from “neutral” to “below market.

The value of the shares of the largest British bank HSBC decreased by 1.3% on the news that the company will gradually exclude coal energy and steam coal mining from its list of assets.

The share price of the largest British retailer of sportswear JD Sports fell by 6.3%. Earlier the company reported a decline in profits in January-June on the background of soaring inflation and lower consumer spending.

An important pressure factor for the stock market in Europe on Thursday was weak results of the last trading session on the US stock market. Thus, on Wednesday the Dow Jones Industrial Average index collapsed by 1.7%, the S&P 500 also sank by 1.7% and the NASDAQ Composite by 1.8%. In addition, the key trading floors of Asia also showed a strong decline the day before.

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