European equities collapse amid energy crisis, dampening risk of recovery

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(Bloomberg) – European stocks were heading for their worst week since January as concerns over a continent-wide energy crisis and stretched valuations weighed on sentiment.

The Stoxx 600 Europe Index slipped 0.9% at 9:30 am in London, following the decline in Asian stocks and US futures. Automotive and banking were among the biggest losers, with only the utilities sector in the green, led by a 4.1% increase in Electricité de France SA shares.

After six straight quarters of gains – the longest winning streak since 2006 – momentum has faded for the main benchmark European equities, which is 5.5% below its August high. The outlook has been clouded by soaring energy prices, fears of a Chinese slowdown, rising bond yields, the imminent end of central bank stimulus measures, and persistent bottlenecks in the economy. offer.

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“As input costs increase, it will be those with differentiated business models and strong pricing power who will be able to pass these costs on to consumers and maintain or increase their profitability.” said Niall Gallagher, investment director for European equities at GAM Investments. “This includes a range of businesses exposed to capital and infrastructure spending and those directly exposed to rising oil and gas prices. “

Among individual players on Friday, Sartorius AG fell 3.8%, after Societe Generale analyst Delphine Le Louet cut the recommendation on the stock to keep buying. BMW rose 0.8%, outperforming its peers, after the company increased its automotive Ebit margin forecast for the full year.

Inflation data

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The statistical agency of the European Union released its preliminary estimate of inflation for September on Friday. Meanwhile, a gauge measuring business activity in the manufacturing sector fell last month by the highest margin since April 2020, when the Covid-19 pandemic began, IHS Markit said.

“As long as inflationary pressures emanate in large part from an upturn in economic activity and bond yields rise rather than soar, the valuation lures of certain more cyclical sectors of the equity markets may continue to attract. attention, ”said Paul Markham. , Global Equity Portfolio Manager at Newton Investment Management.

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