European stocks slumped to a three-week low on Tuesday and were set for their worst session in nearly two months as a risk-off mood deepened amid a resurgence in Covid-19 cases and rate hike concerns.
The pan-European Stoxx 600 shed 1.3 per cent, led by a 2.7 per cent drop in tech stocks as prospects of a high-rate environment dented appeal of the high-growth sector.
US President Joe Biden on Monday tapped Jerome Powell to continue as Fed chair, lifting bets of US rate hikes in 2022. Money market traders have now fully priced in a 10-basis-point rate hike by the European Central Bank in December 2022, up from 50 per cent odds on Monday.
“What happens in the US affects the world, and especially European firms importing from the United States,” said Charalambos Pissouros, head of research at JFD Group.
“The reason tech stocks are affected the most is because high-growth firms tend to be valued based on discounted future cash flows, and thus, higher rates faster mean lower present values,” Mr Pissouros said.
Growing nerves around a fourth wave of Covid-19 infections stalling European recovery at a time when central banks are planning the withdrawal of monetary support has also pulled investors out of equities.
The Euro Stoxx 50 volatility index, Europe’s main gauge of stock market anxiety, touched its highest level in almost seven weeks.
“One-off events or company-related headline news, such as with Telecom Italia yesterday, cannot last for too long, or overshadow concern around increasing Covid cases, new lockdown measures, and growth in European economies,” Mr Pissouros said.
IHS Markit’s survey showed euro zone business growth unexpectedly accelerated this month, while price pressures soared again.
Meanwhile, travel stocks slipped 1.4 per cent after the United States issued an advisory against movement to Germany and Denmark due to rising COVID-19 cases, while oil stocks slid 0.9 per cent tracking a dip in crude prices on growing expectations that the United States, Japan and India will release crude reserves to tame prices.
Thyssenkrupp fell 6.2 per cent after Swedish activist fund Cevian nearly halved its stake in the German conglomerate.
British online electricals retailer AO World slipped 24.6 per cent after trimming its fiscal 2022 profit outlook citing supply chain issues.
Dutch financial services company Intertrust surged 14.6 per cent to its highest in over five years after saying it had received multiple takeover offers. – Reuters
