European shares retreat amid interest rate jitters, recession fears

Oct 5 (Reuters) – European stocks fell on Wednesday, sparking a three-day rally as investors dampened expectations that central banks would ease their hawkish stance on inflation as slowing business activity in the region fueled fears of an economic slowdown stoked

After gaining more than 5% in the previous three sessions, the pan-European STOXX 600 index (.STOXX) fell 1% as a sharp hike in interest rates by the New Zealand central bank on Wednesday rattled investors and weighed on risk sentiment.

The index posted its best daily performance since mid-March on Tuesday after weaker US manufacturing data, shrinking US job vacancies and a less-than-expected rate hike from the Reserve Bank of Australia raised hopes that central banks around the world could switch to less aggressive rate hikes in the US Future.

“(Today) is a realization that it is too early to conclude that the turning point is coming,” said Azad Zangana, senior European economist and strategist at Schroders.

Wednesday’s payrolls data from the United States did little to allay jitters about rate hikes. US private employers boosted hiring in September, while the Institute for Supply Management’s job readout for the service industry also surged, suggesting strong demand for labour.

Investors are now awaiting a more comprehensive US nonfarm payrolls report, due out on Friday, for more clues on the state of the jobs market and whether the Federal Reserve could steer away from its current ultra-hawkish stance.

Meanwhile, the latest data showed that euro-zone business activity contracted for a third month in September, shattering any hopes that the monetary union will avoid a recession.

“I think Europe is going into a pretty deep recession,” said Patrick Armstrong, chief investment officer at Plurimi Wealth. “You have a consumer drawn to utility bills and gas prices… Manufacturing will slow sharply as electricity prices rise.”

The STOXX 600 index is down 18.2% so far this year as the region grapples with an energy crisis exacerbated by the Russia-Ukraine conflict and worries of an economic slowdown with aggressive US monetary policy central bank and other central banks.

Almost all STOXX 600 sector indices fell, led by real estate stocks (.SX86P) and retailers (.SXRP). Telecom stocks (.SXKP) and banks (.SX7P) fell 2.2% and 2.1%, respectively.

London-based blue chip FTSE 100 (.FTSE) fell 0.5%, while the more domestically oriented FTSE 250 (.FTMC) lost 1.5%.

Among individual stocks, Tesco (TSCO.L) slipped 4.1% after Britain’s largest retailer had forecast full-year earnings at the lower end of its previous guidance.

Bachem Holding AG (BANB.S) shares gained 2.2% as the biotech provider unveiled plans to build a third site in Switzerland.

Reporting by Devik Jain and Amruta Khandekar in Bengaluru; Edited by Sherry Jacob-Phillips, Bernadette Baum and Mark Heinrich

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