European markets closed lower on Wednesday, ending a three-day uptrend as worries that a tightening of monetary policy by central banks could eventually lead to a recession in the global economy have returned to the forefront.
These concerns of investors were reinforced today by the statements of the central bankers at the annual conference of the European Central Bank in Sintra, Portugal on “Monetary policy challenges in a rapidly changing world”.
ECB chief Christine Lagarde told the conference that the era of extremely low inflation that preceded the pandemic was unlikely to return, adding that central banks needed to adjust to significantly higher expectations for rising indicating the central bank’s determination to reduce inflation.
The ECB, meanwhile, has promised to raise interest rates by 25 basis points in July, its first rise in a decade, followed by a potentially bigger move in September.
At the same time, Christine Lagarde stressed the challenges posed to central banks by the continuing rise in prices, noting that finding the right “answer” to monetary policy to deal with soaring inflation is an “art”, a statement that is interpreted as an assumption that may cause a financial slowdown.
Concerns about the recession, however, were fueled mainly by the position of the head of the Federal Reserve, Jerome Powell, who, speaking at the same conference, stressed that the aggressive rate hike by the Fed risks slowing down more than the economy needs, adding however, there is a greater risk that inflation will be left unchecked.
With fears of a possible recession returning sharper, European stocks closed today with significant losses.
In particular, on the board, the pan-European Stoxx 600 index ended the day with losses of 0.67% to 413.42 points, with the car industry leading the decline, recording losses of 2.7%, and almost all other industries following . Exception is the health services sector, which strengthened by 0.7% on Wednesday.
In Frankfurt, the DAX index plunged 1.73%, taking a breather from the level of 13,000 points and specifically at 13,003.35 points, while in Paris the CAC 40 fell by 0.90%, finishing at 6,031.48 In London, the FTSE 100 lost 0.15% to 7,312.32.
Strong losses in the markets of the European region, with the FTSE MIB index in Milan falling 1.21% to 21,833.50 points and the IBEX 35 in Madrid closing at 8,188.00 points, with losses of 1.56%.
The climate was aggravated today by the macros announced earlier for the course of inflation in Germany and Spain.
German inflation fell unexpectedly in June as government relief measures helped ease pressure on households and businesses.
In particular, annual inflation stood at 8.2% in June from 8.7% in May, according to the German statistical office. Analysts’ average estimates in a Bloomberg poll put inflation at 8.8%.
At the same time, data released in Spain showed a jump in inflation to 10.2% in June from 8.7% the previous month. This is the first time that inflation has exceeded 10% since April 1985, and the figures exceeded the estimate of analysts who put inflation at 9% in a Reuters poll.
Structural inflation excluding food and energy climbed to 5.5% from 4.9% last month, according to preliminary data from the Spanish statistics service.