European shares trip on recession fears as German producer prices surge

By Anisha Sircar

Aug 19 (Reuters)European shares tumbled on Friday and tracked 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 .STOXX slide 0.6% in early deals, with travel stocks .SXTP leading the declines.

Energy stocks .SXEP were among the few outperformers on the day and week, inches 0.1% higher on Friday.

“Energy costs are only expected to go up as winter in the Northern Hemisphere kicks in… European energy is the sector that’s going to be able to ride through the current environment,” said Danni Hewson, financial analyst at AJ Bell.

Skyrocketing energy prices due to the Ukraine war pushed German producer prices 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 .GDAXI lost 1% and the country’s 10-year yields rose to their highest in four weeks. DE10YT=RRGVD/EUR

“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,” Hewson added.

Money markets are raising their batch on ECB hikes, moving to fully price in a 50 basis point (bps) hike 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. GVD/EUR

The benchmark index is set to end the week about 0.3% weaker as investors weigh weak economic data, the impact of tighter monetary policy, fears of spiraling inflation and shrinking economies across the region. It gained more than 1% last week.

French catering and food services group Sodexo EXHO.PA fell 2%, 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 TKWY.AS surged 25.9% to top the STOXX 600 after agreeing to sell 33% stake in Brazil’s iFood to technology investor Prosus PRX.US for up to 1.8 billion euros ($1.8 billion). Prosus shares ticked up 0.1%.

FLSmidth FLS.CO jumped 10% after raising its annual sales outlook as the mining equipment and cement maker beat second-quarter earnings forecasts.

(Reporting by Anisha Sircar in Bengaluru; editing by Uttaresh.V and Sriraj Kalluvila)

((Anisha.Sircar@thomsonreuters.com ;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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