European Stocks Close Notably Lower On Inflation Worries, Rate Hikes Jitters

Despite staging a fairly good recovery in late afternoon trades, European stocks closed notably lower on Wednesday amid rising worries about inflation and tighter policies from central banks.

Stocks regained some lost ground in the final hour, reacting to Federal Reserve Chairman Jerome Powell's testimony before the Senage Banking Committee.

"With inflation rising sharply, there has been good reason to expedite the normalization of monetary policy," ECB Governing Council member Olli Rehn said on Tuesday.

"The impacts of Russia's brutal war are being felt around the world, and people are having to pay higher prices for energy and food," he said.

Surging U.K. inflation also revived fears about aggressive monetary tightening and slowing growth. Consumer price inflation rose further in May at the fastest pace in 40 years on rising energy and food prices, deepening the cost of living crisis.

U.K. consumer price inflation rose to 9.1% in May, in line with expectations, from 9% in April, data from the Office for National Statistics revealed.

In prepared remarks, Powell indicated the Fed plans to continue moving expeditiously to combat inflation but argued the U.S. economy is strong enough to handle tighter monetary policy.

Powell said the pace of future interest rate hikes will be dependent on incoming data and the evolving outlook for the economy and suggested the Fed will need to see "compelling evidence" that inflation is slowing before it begins to scale back its monetary policy tightening plans.

The Fed Chief said the central bank will strive to "avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time.

The pan European Stoxx 600 declined 0.7%. The U.K.'s FTSE 100 drifted down 0.88%, Germany's DAX slid 1.11% and France's CAC 40 dropped 0.81%, while Switzerland's SMI bucked the trend and gained 0.46%.

Among other markets in Europe, Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Ireland, Netherlands, Norway, Poland, Portugal, Spain and Sweden posted sharp to moderate losses.

Iceland and Turkey edged down marginally, while Russia closed higher.

In the UK market, Glencore and Antofagasta ended higher by 6.89% and 6.43%, respectively. Rolls-Royce Holdings, Anglo American Plc, Rio Tinto, Prudential, Ocado Group, Standard Chartered and Shell lost 3 to 5.2%.

BP, Melrose Industries, BT Group, Whitbread, Persimmon, CRH, M&G, DCC, Pearson, IAG, Aviva and Smiths Group shed 1 to 3%. HSBC Holdings and Tesco both ended nearly 1% down.

JD Sports Fashion rallied 6.6% after the sportswear retailer posted an annual profit that more than doubled.

Centrica gained 4.58%, while Natwest Group, Admiral Group, Rentokil Initial, LSE, Hargreaves Lansdown, Dechra Pharmaceuticals, Spirax-Sarco Engineering, Avast and AstraZeneca also ended sharply higher.

In the French market, ArcelorMittal plunged nearly 10%. Carrefour tumbled about 7%, while Saint Gobai, Airbus Group, Michelin, Valeo, Unibail Rodamco, Vivendi, Faurecia, STMicroElectronics, Credit Agricole, Publicis Groupe, Safran and Air France-KLM shed 1 to 3.2%.

WorldLine, Capgemini, Vinci, Orange, Engie, Atos, Pernod Ricard, Sanofi and Hermes International closed with strong gains.

In Germany, BASF and Covestro both ended lower by about 5.5%. Brenntag dropped 4%. Fresenius, Daimler, Continental, MTU Aero Engines, Bayer, BMW, Volkswagen, Merck, Fresenius Medical Care, Infineon Technologies and Siemens lost 1 to 3%.

Deutsche Telekom, Deutsche Wohnen, Qiagen, E.ON and Symrise gained 1 to 2%.

Clariant AG, a Swiss specialty chemicals firm, lost almost 5% after saying it intends to slim down the number of business units from five to three. But the stock recovered some lost ground and eventually ended the session with a loss of about 1.6%.

A report from the Office for National Statistics said UK house prices registered a double-digit growth in April, rising to 12.4% in the month from 9.7% in March. This was the strongest increase since June 2021.

On a monthly basis, house prices gained by a seasonally adjusted 0.4% from March, when prices were up 0.7%, data showed.

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