Europe close: Markets weaker on economic, political jitters

Stocks on the continent ended in the red on Thursday, as political troubles continued to percolate in Italy, and following modest losses overnight in US stock markets.

The pan-European Stoxx 600 was last down 1.53% at 406.5, while the DAX lost 1.86% to 12,519.66 in Germany, France’s CAC 40 slipped 1.41% to 5,915.41, and the FTSE MIB slid 3.44% in Italy to 20,554.33.

“European markets have slipped back sharply today on a combination of rising political risk in the euro area as the Italian government teeters on the brink of collapse, and the EU Commission cut its GDP forecasts for 2022, to 2.6%, while upgrading its average inflation prediction for the year to 7.6%,” said CMC Markets chief market analyst Michael Hewson.

“On a backdrop of surging inflation, and rising recession risk, these GDP estimates still come across as optimistic given the challenges facing the EU’s biggest economy Germany and the possibility Russia could cut gas supply as we towards the end of the year.

“For 2023 the picture was little better, downgrading GDP to 1.4% from 2.3%.”

Hewson added that the sell-off on the FTSE MIB had led European markets lower, and came amid growing concern that any attempt by the European Central Bank to tighten monetary policy could have “significantly negative effects” on Italian bond yields.

“Investors will be looking for more detail on how the ECB intends to deal with that at next week’s rate meeting, as the euro finally slips conclusively below parity.”

In economic news, Brussels lifted its forecasts for inflation across the European Union, and trimmed its growth outlook, as the fallout from Russia’s invasion of Ukraine continued to weigh heavily.

Publishing its summer economic forecasts, the European Commission said it now expected inflation to reach 7.6% in the eurozone - up from 6.1% - and 8.3% in the wider bloc this year, before easing to 4.0% in the eurozone and 4.6% in the EU in 2023.

The spring forecast had expected 2023 inflation to peak at 2.3% in the single currency countries and at 3.2% in the EU as a whole.

Across the pond, meanwhile, Americans filed new unemployment claims at an accelerated clip in the week ended 9 July, according to the Labor Department.

Initial claims for unemployment benefits increased by 9,000 week-on-week to 244,000, ahead of market expectations for a reading of 235,000 for the highest print since November 2021.

On a non-seasonally adjusted basis, initial claims rose by 21,384 week-on-week to 241,314, with notable increases seen in New York, Kentucky, and Indiana.

Staying stateside, US producer prices increased to 140.43 points in June, according to the Bureau of Labor Statistics, up from 138.89 points in May.

The producer price index for final demand increased a seasonally adjusted 1.1% in June following advances of 0.9% in May and 0.4% in April.

On an unadjusted basis, final demand prices moved ahead 11.3% for the 12 months ended 30 June - the largest increase since a record 11.6% jump in March.

In equities, Swedish property developer Samhallsbyggnadsbolaget I Norden tumbled 19.4% after the company reported disappointing second-quarter numbers.

Admiral Group plunged 18.11% and Direct Line Insurance slid 11.68% after motor insurer Sabre Insurance said it expected to pay out a smaller dividend for 2022, as it warned over the impact of claims inflation.

Sabre shares themselves were down 39.77%.

On the upside, Hugo Boss was 2.36% firmer after the luxury fashion house hiked its expectations for the 2022 full-year.

Credit-checking firm Experian rose 3.54% after it reiterated its annual targets following a strong start to the year.

Reporting by Josh White at Sharecast.com. Additional reporting by Alexander Bueso.