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PARIS: European shares slumped 1.5% on Thursday, stretching declines to the second straight session, as dismal results from big US retailers underlined the hit from surging inflation on the world’s biggest economy.

Tracking US peers, European retailers fell nearly 2% and were the biggest drags on the pan-European STOXX 600 index, which extended declines after a 1% slide on Wednesday.

Losses were broad based, with all major sub-sectors trading in the red.

US stock futures pointed to a fresh sell-off after Target Corp’s quarterly profit halved and Walmart cut its profit view as they struggle with rising fuel and freight costs, while consumers shift their spending away from big-ticket purchases to essentials.

European retailers such as Tesco and Sainsbury had also warned last month of a hit to full-year profits from rising prices.

Nestle, Tesco, Diageo and Unilever fell between 4.5% and 5.5% on Thursday.

“The fact that earnings are being compressed for mid-to-lower tier consumers just tells you inflation is having an impact ... on Europe probably more so than the US because wage expectations are not as good,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“It’s reviving the stories of stagflation, particularly so in the euro zone.” Along with the ongoing stimulus reduction by central banks and concerns about the fallout from the Ukraine war, investors fled to the safety of bonds.

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