European shares fell on Friday and posted a weekly loss as the highest-ever jump in German producer prices in July added to gloom over the economic outlook for the region’s biggest economy and rekindled fears of a recession.
The pan-European STOXX 600 ended 0.8% lower, with travel stocks leading the declines.
Rising energy prices due to the Ukraine war pushed German producer costs in July to their highest ever increases both year-on-year and month-on-month. Energy prices as a whole jumped 105%, compared with July 2021.
Germany’s DAX lost 1.1%, falling the most among its continental peers, and its 10-year yields rose to their highest in four weeks.
The benchmark index is set to end the week about 1% weaker as investors weigh weak economic data, the impact of tighter monetary policy, fears of spiralling inflation and shrinking economies across the region. It gained more than 1% last week.
“European markets appear to have run out of puff this week, spooked in some part perhaps by the big jumps in inflation we’ve seen in UK CPI this week, as well as this morning’s eye-watering surge in German PPI for July,” said Michael Hewson, chief market analyst at CMC Markets UK.
Money markets are raising bets on European Central Bank hikes, moving to fully price in a 50 basis point (bps) rise in September, compared to the 50% chance of such a move priced in early August. They are also pricing in a small probability of a 75 bps move at the meeting.
“The European Central Bank is going to have to keep raising rates, because otherwise people will begin to question their credibility even further… We’re likely going to see a hike of the same size as they have already done, but whether there would be a more aggressive move is anyone’s guess, since they are walking such a tightrope,” said Danni Hewson, financial analyst at AJ Bell.
French catering and food services group Sodexo fell 1.3% after Jefferies cut the stock to “hold” from “buy” to factor in a cautious recessionary scenario over fiscal year 2023-2024.
Just Eat Takeaway.com surged 25.8% to top the STOXX 600 after agreeing to sell 33% stake in Brazil’s iFood to technology investor Prosus for up to 1.8 billion euros ($1.8 billion). Prosus shares dripped 1.3%.
FLSmidth jumped 9.8% after raising its annual sales outlook as the mining equipment and cement maker beat second-quarter earnings forecasts.