Europe midday: Stocks tumble on Italian banks, German growth forecasts cut
The decline in European stocks continued on Friday as the German central bank cut its growth forecast and Italian banks suffered on concerns over government bonds.
The pan-European Stoxx 600 index extended losses to be down 1.54% at midday, with all major regional exchanges down. Investors were also shaken by the European Central Bank signaling its intention to raise interest rates next month. investors are also watching US inflation data later in the day.
“With the ECB now joining the clutch of central banks in tightening mode, the specter of stagflation once again looms as investors seek refuge from the brewing storm,” said Interactive Investor Markets Manager Richard Hunter.
“With the Federal Reserve likely to raise rates again next week, it remains to be seen whether the hikes so far have had the desired impact on containing the economy without tipping the country into recession.”
Economists are forecasting a rise in the US CPI of 0.7% in May against a rise of 0.3% in April.
Meanwhile, Germany’s central bank lowered its economic growth forecast for the country on Friday as war in Ukraine and runaway inflation impacted the post-Covid recovery.
The Deutsche Bundesbank said it now expects the German economy to grow by 1.9% this year, down from 2.5% last December, with growth for 2023 and 2024 expected to reach 2.4. % and 1.8%, respectively.
“Germany’s economic recovery is expected to continue, but at a considerably more moderate pace than forecast last December,” the central bank said in its statement.
In equity news, shares of Italian banks fell sharply as rising risk premiums on the country’s government bonds, in which lenders hold large stakes, spooked investors.
Actions in both UniCredit and BPM bank both plunged, triggering automatic trading halts. Intesa San Paolo and BPER Bank were also lower.
Pharmaceutical giant GSK surged after the company said its respiratory syncytial virus vaccine was successful in a late-stage trial for people over 60.
Just eat was higher according to a report that its US wing has attracted preliminary interest from private equity firms, including Apollo Global Management.