Europe Stocks Have Worst Week Since February on Clouded Outlook
The Stoxx 600 Europe Index fell 0.4% on Friday, bringing the week’s drop to 2.2%. The gauge pared losses of as much as 1.6% earlier in the day after Merck & Co. said its Covid-19 antiviral pill reduced the risk of hospitalization or death by 50% in an interim analysis of a late-stage trial.
Miners and technology shares were the worst performers today. Travel and real estate led the rebound, while utilities also outperformed, largely thanks to a 5.9% jump in shares of Electricite de France SA. Ryanair Holdings Plc jumped by 5% and tourism services provider TUI AG soared by 5.5% on hopes of travel resuming as the pandemic recedes and as G-7 countries agreed to work together to accelerate a pickup in international travel.
After six consecutive quarters of gains -- the longest winning streak since 2006 -- momentum has faded for the main European equities benchmark, which is 4.8% below its August record high. The outlook has been clouded by surging energy prices, fears of a Chinese slowdown, rising bond yields, a looming wind-down of central bank stimulus, and persistent supply bottlenecks.
“With rising input costs, it will be those with differentiated business models and strong pricing power who will be able to pass on those costs to consumers and maintain or grow their profitability,” said Niall Gallagher, investment director for European equities at GAM Investments. “This includes a range of businesses exposed to investment and infrastructure spend and those directly exposed to rising oil & gas prices.”
Pearson Rises; Wetherspoon Drops on Update: EMEA Equity Movers
Bank of America Corp. strategists have turned bearish on European equities, cutting the region’s equities to negative from neutral, and expect the benchmark Stoxx 600 Index to slump 10% by year-end as economic growth slows and inflation remains elevated.
The European Union’s statistical agency said in a preliminary estimate on Friday that inflation in the euro area surged to a 13-year high last month. Meanwhile, a gauge measuring business activity in manufacturing fell in September by the biggest margin since April 2020, when the pandemic was starting, IHS Markit said Friday.
“As long as inflationary pressures emanate to a meaningful extent from a recovery in economic activity, and bond yields tick -- rather than lurch --higher, the valuation attractions of some more cyclical areas of equity markets may continue to attract attention,” said Paul Markham, global equities portfolio manager at Newton Investment Management.
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