Europe midday: Shares slump on Italian banks, German growth forecast cut
The slide in European shares continued on Friday as Germany's central bank cut growth forecasts and a Italian banks suffered over government bond worries.
The pan-European Stoxx 600 index extended losses to be down 1.54% at midday, with all major regional bourses lower. Investors were also rattled by the European Central Bank signaling its intention for an interest rate rise next month. investors are also eyeing US inflation data later in the day.
“With the ECB now joining the clutch of central banks in tightening mode, the spectre of stagflation looms large once more as investors seek refuge from the gathering storm,” said Interactive Investor head of markets Richard Hunter.
“With the Federal Reserve likely to hike rates again next week, it remains to be seen whether the rises so far have had the desired impact on reining in the economy without tipping the country into recession.”
Economists are forecasting a US CPI rise of 0.7% for May compared with a 0.3% rise in April.
Meanwhile, Germany’s central bank cut its economic growth forecasts for the country on Friday, as the war in Ukraine and red-hot inflation impacted the post-Covid recovery.
Deutsche Bundesbank said it now expected the German economy to expand by 1.9% this year, down from the 2.5% it pencilled in last December, with 2023 and 2024 growth expected to reach 2.4% and 1.8%, respectively.
“Germany’s economic recovery is likely to continue, but at a considerably more subdued pace than projected last December,” the central bank said in its statement.
In equity news, shares in Italian banks fell sharply as increasing risk premiums on the country's government bonds, in which lenders have large holdings, spooked investors.
Shares in both UniCredit and Banco BPM both plunged, triggering automatic trading suspensions. Intesa Sanpaolo and BPER Banca were also lower.
Pharma giant GSK jumped after the company said its vaccine for respiratory syncytial virus was successful in a late-stage trial for people over 60.
Just Eat was higher on a report its US wing has attracted preliminary interest from private equity firms, including Apollo Global Management.