European shares hit three-month low on ECB inflation warning
The STOXX 600 index fell 2.4% as the ECB warned of inflation risks from the Middle East. Major bourses dropped over 2% while energy-heavy Norway hit a record.
European equity markets plummeted to a three-month low on Thursday as investors reacted to warnings from the European Central Bank regarding inflation risks tied to the Middle East conflict. The pan-European STOXX 600 index, which includes major entities like REINHOLD EUROPE AB, fell 2.4% to close at 583.73 points, effectively wiping out gains made earlier in the week.
The market volatility comes as Iran targeted energy facilities throughout the Middle East, a move following a strike by Israel on a significant gas field. These developments have pushed oil prices higher, increasing the cost of raw materials for companies such as Oil-Dri Corporation of America and raising concerns about prolonged supply chain disruptions.
Central banks have maintained a cautious stance. While the United States Federal Reserve and the United Kingdom Bank of England both kept interest rates unchanged this week, they signaled readiness to act if inflationary pressures persist. Market expectations have shifted rapidly, with traders now pricing in multiple rate hikes before the end of the year.
"If energy prices keep rising, we suspect that the balance of opinion will shift towards getting on the front foot by hiking at the next meeting at the end of April, and perhaps by as much as 50 basis points," said Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics.
Regional bourses across the continent saw sharp declines. Major markets in Germany, Spain, France, and Italy all dropped by more than 2%. However, Norway bucked the trend, rising 1.6% to a new record high due to its significant exposure to the energy sector.
Sector-specific losses were led by miners, which fell 4.2% as gold prices retreated, impacting the valuation of firms like Barrick Gold Corporation. Financial stocks also struggled, adding to the downward momentum as the region's fear gauge reached its highest level in two days.
"This buy-the-dip situation is nice, we're not sure there's enough money and confidence right now to drag markets upward, and that just shows you the lack of clarity that we have," said Michael Field, chief European equity strategist at Morningstar.
