Eurozone stocks sink as inflation accelerates to record high

Eurozone stocks sink as inflation accelerates to record high

Web Desk
May 31, 2022

Eurozone stocks sink as inflation accelerates to record high

Eurozone equity markets sank Tuesday on information that the area’s inflation rate hit another file excessive in May as the fallout from Russia’s invasion of Ukraine.

Consumer fees within the eurozone rose by way of 8.1 percent, as compared with 7.4 percent in April, reputable statistics showed, with energy surging the quickest.

Sentiment took another battering on fears of severe economic fallout from a deal agreed by the European Union late Monday for a partial embargo of Russian oil imports over its assault on Ukraine.

The embargo also sent oil prices soaring to two-month peaks, in turn fuelling more inflationary fears and pressuring central banks to tighten monetary policy and prevent consumer prices from rocketing even higher.

However, the resurgent oil market lifted the London stock market because it boosts profits and revenues for energy majors BP and Shell.

– Energy ‘may soar faster’ –

“Inflation in the eurozone increased even further,” said Jonas Keck, an economist at UK-based research group the Centre for Economics and Business Research.

“As the EU reached an agreement on new sanctions targeting Russian oil supplies, energy prices may well soar even faster in the coming months.”

Markets have been rocked this year as the Ukraine conflict has fuelled massive price gains for energy and food, translating into soaring inflation that threatens to derail the post-pandemic economic recovery.

Red-hot eurozone inflation intensified calls for interest rate hikes from the European Central Bank, which has already flagged plans to raise borrowing costs in July.

“Over recent months, the ECB has faced growing pressure to shift away from its pandemic stimulus position, which has seen it hold its main policy rates at their current historic lows,” added Keck.

“This stands in contrast to other major central banks including the US Federal Reserve and Bank of England, both of which have seen at least two rate rises this year.”

Following a holiday weekend in the US, Wall Street stocks retreated early Tuesday, threatening last week’s positive momentum ahead of key reports on employment, consumer confidence, and business sentiment.

– Brent oil tops $124 –

In reaction to the EU’s partial embargo, Brent oil briefly broke above $124 per barrel and WTI crude breached $119.

European chiefs said the latest sanctions would ban purchases of Russian oil delivered by sea, though there would be a temporary exemption for pipelines.

“The gradual phasing in of the deal along with the exemptions included prevented the price from rising much higher but ultimately it further tightens a market that’s already undersupplied,” said Craig Erlam at OANDA.

While widely expected, the agreement adds further upside to crude just as China begins to ease Covid restrictions in Shanghai and Beijing, raising the likelihood of a jump in demand from the world’s number-two economy.

There was some much-needed cheer from data showing China’s manufacturing shrunk in May at a slower rate than expected.

The Purchasing Managers’ Index (PMI) — a key gauge of producing activity — hit 49.6 the ultimate month, improving from 47.4 in April, which turned into the worst analysis since early 2020.

However, it remained beneath the 50-factor mark isolating the increase from contraction and showing the Chinese economic system turned into still struggling.

– Key figures at around 1345 GMT –

Frankfurt – DAX: DOWN 1.3 percent at 14,379.10 points

Paris – CAC 40: DOWN 1.5 percent at 6,463.30 points

EURO STOXX 50: DOWN 1.5 percent at 3,784.71 points

London – FTSE 100: UP 0.3 percent at 7,622.18 points

Brent North Sea crude: UP 2.0 percent at $119.93 per barrel

West Texas Intermediate: UP 3.5 percent at $119.05

New York – Dow: DOWN 1.4 percent at 32,753.30 points

Tokyo – Nikkei 225: DOWN 0.3 percent at 27,279.80 (close)

Hong Kong – Hang Seng Index: UP 1.4 percent at 21,415.20 (close)

Shanghai – Composite: UP 1.2 percent at 3,186.43 (close)

Euro/dollar: DOWN at $1.0702 from $1.0779 on Monday