- The U.S. consumer price index report released for May on Friday came in hotter than expected at 8.6% annually, resurfacing market concerns that action from the Federal Reserve and other central banks could hike rates more quickly.
LONDON — European stocks retreated further on Tuesday amid fears that central banks will be forced into aggressive monetary policy tightening with inflation remaining high.
The pan-European Stoxx 600 dropped 1.2% by the close, having initially climbed 1% at the start of the session. Retail stocks fell 2% to lead losses while banks added 1.3%.
Global stock markets were sent reeling on Monday, with investors reacting to the potential for more aggressive rate hikes by central banks in Europe and the United States after the latest inflation report.
The U.S. consumer price index report released for May on Friday came in hotter than expected at 8.6% annually, resurfacing market concerns that action from the Federal Reserve and other central banks could hike rates more quickly, a move that could risk tipping the global economy into recession.
Major averages in the U.S. closed out their biggest weekly declines since January on Friday, and there were further losses on Wall Street on Monday, with the S&P 500 closing in bear market territory. On Wall Street Tuesday, stocks fell again as the market struggled to rebound from Monday's steep declines.
Against this backdrop, the U.S. Federal Reserve is central to market action this week, with Fed officials meeting on Tuesday and Wednesday to discuss their next monetary policy move.
The Federal Open Market Committee is widely expected to announce at least a 50-basis-point hike on Wednesday, having already raised rates twice this year, though market bets for a 75-basis-point hike have risen in light of Friday's inflation reading.
On the data front, German inflation accelerated to a five-decade high of 7.9% year on year by national standards in May, official figures confirmed Tuesday.
The U.K. unemployment rate rose slightly in the three months to April to 3.8%, the Office for National Statistics revealed Tuesday. Meanwhile, job vacancies rose to a record 1.3 million.
Hugh Gimber, global market strategist at JPMorgan Asset Management, said the labor market report framed the "conundrum" facing the Bank of England on Thursday.
"Inflation is unlikely to peak until after the summer, GDP has fallen for the second month running, and the economy remains very vulnerable to another spike in energy prices given the high dependence on natural gas," he said, suggesting that the BoE may ramp up its monetary policy tightening with a 50-basis-point hike on Thursday.
"Most importantly, however, the Bank would be wise to place a strong emphasis on data dependency. The range of outcomes for the UK economy is very wide over the next six months."
Euro area industrial production data for April and Germany's ZEW index of economic sentiment for June are also due on Tuesday.
In terms of individual share price movement in Europe, Finnish utility Fortum climbed 6.5% to lead the Stoxx 600 after a report suggested it plans to sell its Russian power assets by July 1.
At the bottom of the index, French IT company Atos plunged 23% after announcing that CEO Rodolphe Belmer will step down after just five months at the helm, amid reports of deep strategic divisions within the firm's leadership.