Leading Western European stock indexes rallied on Tuesday after sliding down over the past two days. Market players are discussing the intensifying energy crisis, prospective interest rate hikes by the world's central banks, and the oncoming recession in the global economy.
At the moment of writing, the STOXX Europe 600 rose by 0.87% to 426,32 points.
The best performing stocks on the STOXX Europe 600 were Ambu A/S (+7%), Dr. Martens PLC (+5%), and Atos SE (+4.7%).
Energy and commodity companies suffered the biggest losses on Tuesday. Falling metal prices caused by the coronavirus outbreak in China and investor worries about demand for major commodities weighed down on energy and commodity sectors. The worst performing stocks were Polymetal International PLC (-3%), Orron Energy AB (-2.8%), Dino Polska S.A. (-2.3%), Equinor ASA (-2%), Antofagasta PLC (-1.9%), and BHP Group (-1.8%).
The CAC 40 and the DAX gained 0.9%, while the FTSE 100 added 0.7%.
Biggest gainers and losers
Shares of Adevinta jumped by 15% thanks to a strong Q2 earnings report. The Norwegian IT company increased its core market revenues by 10% year-over-year.
Uniper SE lost 2.2% following the company's announcement that it had fully used its existing €9 billion credit line, which was originally provided to help the company with surging natural gas prices.
What's happening in the market?
European investors have paid close attention to economic sentiment in eurozone countries on Tuesday.
According to preliminary data by the Spanish Statistical Office (INE), consumer prices in Spain rose by 10.4% in August year-over-year, slightly below a 10.8% increase reported in July.
Month-on-month, inflation increased by 0.1%, up from July's 0.6% decrease.
Inflation in Spain eased due to a slowdown in the growth of energy prices, INE's analysts said.
The latest inflation data pushed up the IBEX by 0.7%.
Tuesday's key data release in the EU was the consumer confidence report. It will be followed by EU CPI data on Wednesday. Market players in Europe are also awaiting German inflation data. According to preliminary estimates, annual inflation is predicted to rise to 7.8% from 7.5% in the previous month.
However, traders will be largely focused on the US non-farm payrolls data, which will be released on Friday. Analysts believe that strong US labor market data would reinforce the Fed's commitment to tighten its monetary policy and trigger a negative reaction from investors.
China will step up measures to boost demand and stabilize employment and prices in the second half of the year to optimize economic outcomes amid weaker economic growth.
Last week, China's cabinet agreed on a new stimulus package, including billions of dollars worth of policy financing.
China's move contrasts sharply with the tightening of monetary policy in many other countries.
Monday's trading session
On Monday, European indexes went down following comments by Jerome Powell, who stated that the Fed must continue tightening its monetary policy.
The STOXX Europe 600 lost 0.8% and fell to 422.65 points. Stocks in energy, utilities, and chemical sectors were the worst performers yesterday, pushed down by continuously high natural gas prices.
The DAX and CAC 40 decreased by 0.61% and 0.83% respectively. UK exchanges were closed on Monday for a bank holiday. On Friday, the FTSE 100 lost 0.7%.
Shares of Ericsson dropped on Monday after the Swedish telecommunications equipment manufacturer announced it would exit Russia in the coming months. The company suspended its operations in Russia in April.
The share price of Valneva advanced on Monday thanks to successful trials of its COVID-19 drug.
The market capitalization of Engie SA decreased by 4.3%.
Shares of Veolia Environment SA, a French resource management company, fell by 1%.
German energy company RWE AG lost 2.2% on Monday.
Shares of Bayer AG slumped by 4.9% during yesterday's trading session.
The market capitalization of LVMH and Hermes fell by 1% and 1.2% respectively due to a lower EU consumer spending outlook.
On Monday, European investors focused on statements by Fed chairman Jerome Powell regarding the regulator's further monetary policy course.
During his speech at the economic symposium in Jackson Hole, Powell reiterated that the Fed must stick to its monetary tightening course to bring record high inflation under control. "We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%," Powell said.
The Fed chairman also warned that the regulator's policy course could negatively affect US economic growth and bring pain to households and businesses. However, these measures would be necessary to normalize consumer prices and bring demand and supply into better balance.
Powell was joined by ECB representatives, who also stated that the EU regulator should follow a hawkish policy in the near future.
Francois Villeroy de Galhau, the governor of the Bank of France, said that the ECB should increase interest rates to 1-2% by the end of 2022.
On Monday, the yield on Germany's 10-year sovereign bonds jumped by more than 10 basis points to 1.5460%, reaching a 2-month high. The yield on Italy's 10-year bonds rose by more than 16 bps to 3.844%. Yield of Spanish and Portuguese bonds also went up. Generally, bond prices decline as yields increase.
Investors were also concerned about the EU response to the oncoming energy crisis caused by the interruption of gas supply via the Nord Stream pipeline. Gazprom announced it would halt down gas deliveries via the pipeline from August 31 to September 2 due to technical maintenance.
Energy prices in Germany reached €1,000 per MWh for the first time on record on Monday.
The looming energy crisis in Europe also put an end to the euro's recovery against the US dollar. EUR reached $0,9944 early on Monday following reports that the ECB was considering a 75 bps hike in September.
Interest rate increases by the world's key central banks could trigger a recession in the global economy and send the stock market downwards.