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European Stocks Close Sharply Lower As Recession Fears Trigger Sell-off

European stocks tumbled on Friday, and several markets in the region plunged to multi-month lows, as mounting fears about a global recession triggered widespread selling.

The sharp interest rate hikes announced by central banks, including the Federal Reserve, the Bank of England, and the Swiss National Bank, have raised concerns the aggressive tightening could hurt growth and push the economies into a recession.

The energy crisis in Europe, and the tax cuts announced by the British government added to the woes.

The pound and UK government bonds fell after Chancellor of the Exchequer Kwasi Kwarteng unveiled a cut to the top rate of income tax from 45% to 40%, and cut the basic rate from 20% to 19%.

S&P Global's Eurozone manufacturing purchasing managers' index fell to 48.5 in September from 49.6 a month earlier, according to preliminary estimates released earlier in the day.

Also, the downturn in British businesses deepened this month because of soaring costs and faltering demand.

The S&P Global/CIPS flash Composite Purchasing Managers' Index (PMI) fell to 48.4 from 49.6 in August.

The pan European Stoxx 600 dropped 2.34%. The U.K.'s FTSE 100 and Germany's DAX both ended 1.97% down, France's CAC 40 fell 2.28%, and Switzerland's SMI drifted down 1.57%.

Among other markets in Europe, Austria, Belgium, Czech Republic, Finland, Greece, Ireland, Netherlands, Norway, Poland, Portugal, Russia and Spain ended sharply lower.

Denmark, Sweden and Turkiye also closed weak, albeit with less pronounced losses. Iceland closed higher.

In the UK market, JD Sports Fashion, Harbour Energy, Natwest Group, Anglo American Plc, Land Securities, Antofagasta, Glencore, Fresnillo, BP, Shell, Endeavour Mining, Next, B&M European Value Retail and Centrica lost 4 to 7%.

In the German market, Continental tanked 9%. Volkswagen, Deutsche Bank, Deutsche Post, Daimler, Fresenius Medical Care, BMW, Bayer, Infineon Technologies, Fresenius, BASF, Porsche Automobil, MTU Aero Engines, Allianz and E.ON lost 2 to 5%.

In Paris, Faurecia plummeted more than 11%. Valeo drifted down 10%. Renault, Atos, Air France-KLM, Thales, Carrefour, Michelin, Societe Generale, Vinci, Kering, LVMH, ArcelorMittal, Accor, Saint Gobain and Safran lost 3 to 7%.

On the economic front, the Eurozone economic downturn deepened in September with worsening performances in both manufacturing and services with demand easing sharply as a result of the cost of living crisis, flash survey results from S&P Global showed.

The flash composite output index declined to a 20-month low of 48.2 in September from 48.9 in the previous month. The reading came in line with expectations.

At 48.5, the manufacturing Purchasing Managers' Index fell to a 27-month low from 49.6 a month ago. The reading was forecast to decline to 48.7. At the same time, the service sector contracted at a rate not seen since February 2021. The corresponding PMI came in at 48.9 versus from 49.8 in August. The expected level was 49.0.

Germany's private sector activity deteriorated more-than-expected in August, and logged the worst performance for over two years amid a backdrop of persistently high inflation, economic uncertainty and increased energy costs, flash survey data from S&P Global showed on Friday.

The flash composite output index dropped to a 28-month low of 45.9 in September from 46.9 in August. The index was forecast to fall to 46.0

Both the services and manufacturing sectors registered declines in September, and the fall was more evident in the services sector. The services Purchasing Managers' Index fell to a 28-month low of 45.4 in September from 47.7 in the prior month. The score was forecast to fall to 47.2.

The manufacturing PMI decreased to a 27-month low of 48.3 in September from 49.1 in August. That was in line with expectations.

UK retail sales declined sharply in September on the cost of living crisis, the Distributive Trades Survey from the Confederation of British Industry showed.

The retail sales balance fell more-than-expected to -20% in September from +37% in August. The score was seen at +10%. A net 13% of retailers expect sales volumes to fall again in October.

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