Europe shares slip as UK adds to rate hike worries

Reuters

Published Sep 27, 2022 03:30AM ET

Updated Sep 27, 2022 12:26PM ET

By Devik Jain and Amruta Khandekar

(Reuters) -Europe bourses fell on Tuesday, extending a sell-off driven by escalating fears of a recession amid aggressive policy tightening by central banks, with London stocks reeling from worries about a new economic plan.

Germany's DAX slipped 0.7% to November 2020 lows, while Italy's MIB index lost 1.2% giving back all of Monday's election relief gains.

The continent-wide STOXX 600 index closed down 0.1% after a volatile session which saw it rise as much as 1.3%.

Gains in miners, energy and healthcare stocks were offset by sharp falls in banks and utilities.

London's blue-chip FTSE index slipped 0.5% as the pound recovered from Monday's record lows on worries about the impact from the UK's "mini budget".

"The stabilisation of the pound has come on the back of expectations that the Bank of England will tighten policy a lot. There's decent space for the BoE to disappoint expectations and if that happens, the pound could resume its downside ride against the dollar," said Themos Fiotakis, head of FX research at Barclays (LON:BARC) in London.

The STOXX 600 lost 4.4% in the last four sessions, as downbeat data on regional economic activity coupled with interest rate hikes by several central banks fed fears of a global economic downturn.

"We had a pretty big spike in risk aversion in September, so there is a little bit of short covering, there's a little bit of relief but nothing particularly fundamental," said Fiotakis.

"In fact, what I worry is that if we continue to get datasets that are solid for the United States, we could see an even more hawkish Federal Reserve response."

Markets have been wary about the pace of tightening by the Fed this year after three super-sized 75-basis-point interest rate hikes and hawkish signals.