European stocks fell sharply in early trade on Wednesday as recession fears rattled markets, with a downbeat reading on German consumer sentiment adding to woes.
At 0825 BST, the benchmark Stoxx 600 index and Germany’s DAX were both down 1%, while France’s CAC 40 was 1.1% lower.
Oanda market analyst Craig Erlam said: “It would appear we’re in for another day of risk-off trade, with parts of Asia recording heavy losses and Europe opening on the backfoot.
“Fear of tightening-induced recessions has wiped out the recovery we saw in stock markets over the bulk of the summer as investors were once again burned by an over-eagerness to catch the bottom in the market despite there being little evidence of it being justified.
“That fear has now gripped the markets and we may see a little more caution going forward as the Fed has made clear that one inflation reading doesn’t make a trend and it will take a lot more than that to convince it that it can afford to ease off the brake. Other central banks may have a lot more work to do; one in particular springs to mind, thanks to the misguided direction the government is taking the country in.”
On the macro front, the latest survey from GfK showed that German consumer sentiment was set to slide further in October amid a drop in purchasing power. GfK’s forward-looking consumer sentiment index for October is forecast to come in at -42.5, down 5.7 points from September.
GfK said the main reason for the sharp decline is that the index for income expectations has fallen 22.4 points to -67.7 – a record low. Meanwhile, the propensity to buy index fell 3.8 points to 19.5 in October, marking the worst reading since the global financial crisis in October 2008.
“The current very high inflation rates of almost eight% are leading to large real income losses among consumers and thus to significantly reduced purchasing power,” said Rolf Bürkl, GfK consumer expert.
“Many households are currently forced to spend significantly more money on energy or to set money aside for significantly higher heating bills. Accordingly, they need to cut back on other expenses, such as new purchases. This is sending consumer sentiment plummeting to a new record low.”
In corporate news, luxury fashion brand Burberry rallied even as it said that chief creative officer Riccardo Tisci will be stepping down at the end of the month. Tisci has decided to leave after almost five years, during which he spearheaded Burberry’s creative transformation.
Tisci will be succeeded by Daniel Lee, who will join the group on 3 October.
