(Bloomberg) – European stocks experienced their worst week since late February as investor fears of a continent-wide energy crisis and worsening earnings forecasts outweighed positive news about the front of the pandemic.
On Friday, the Stoxx 600 Europe Index fell 0.4% for a weekly decline of 2.2%. The sensor cut losses as much as 1.6% earlier in the day after Merck & Co. said its Covid-19 antiviral pill reduces the risk of hospitalization or death by 50% in a late-stage interim analysis.
Mining and technology stocks performed the worst today. Tourism and real estate led the rise, while utilities also performed better, thanks in large part to a 5.9% rise in Electricite de France SA. Ryanair Holdings Plc jumped 5% and travel service provider TUI AG jumped 5.5% on hopes of resuming travel as the pandemic eases and as the G7 countries agreed to work together to accelerate international travel growth.
After six consecutive quarters of growth – the longest successful streak since 2006 – the benchmark for European equity markets fell 4.8% below its record high in August. The outlook is clouded by soaring energy prices, fears of slowing growth in China, rising bond yields, looming central bank stimulus withdrawal and persistent supply constraints.
“As production costs rise, it is those with differentiated business models and strong pricing that will be able to pass these costs onto consumers and maintain or increase their profitability,” said Niall Gallagher, director of investments in European equities at GAM Investments. “This includes a number of businesses that are exposed to investment and infrastructure costs, as well as businesses that are directly affected by rising oil and gas prices.”
Pearson rises; Wetherspoon Falls After Update: Driving Forces Of EMEA Stock
Bank of America Corp. strategists set a bearish stance on European equities, dropping the region’s stock index to negative from neutral, and expect the benchmark Stoxx 600 to fall 10% by the end of the year as economic growth slows and inflation remains high.
The European Union’s statistics agency said Friday on a preliminary estimate that inflation in the euro area rose to a 13-year high last month. Meanwhile, the manufacturing PMI fell in September with the largest difference since April 2020, when the pandemic began, IHS Markit reported Friday.
“As long as inflationary pressures stem largely from the recovery in economic activity, and bond yields rise – not fall – higher, the attractiveness of evaluating some of the more cyclical areas of equity markets may continue to attract attention,” he said. Paul Markham, Global Equity Portfolio Manager, Newton Investment Management.
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