EU stocks fall as fears of interest rate hike-induced recession intensify

Market Summary

Last week, investors focused on the mixed returns for US stocks and Europe equities fell due to growing concerns that a rise in interest rates could push the economy into a downturn.

In the United States, stocks recorded mixed returns as quarterly earnings reports, which were the busiest of the season, grabbed the focus. The Commerce Department’s advance estimate of Q1 GDP growth rate was 1.1%, significantly lower than the anticipated 2%.. In Europe, shares declined due to heightened concerns that rising interest rates could push the economy into a recession. Eurozone’s GDP grew 0.1% in the latest quarter, slightly lower than the anticipated growth rate of 0.15%, but an improvement from the previous quarter's stagnation.

In Asia, Japan’s stock markets gained over the week. The Bank of Japan under new Governor Kazuo Ueda maintained its short-term policy interest rate at -0.1% and the yield curve control framework. In China, equities ended mixed ahead of a five-day holiday, but Beijing's reassurance of its supportive policy stance eased concerns of an uneven economic recovery. Industrial profits in China fell 21.4% YoY from Jan to Mar, an improvement from the 22.9% drop recorded in the first two months of 2023.

Major News

Joe Biden launched his re-election campaign, with concerns raised over his age.

First Republic bank is exploring strategic options after deposit outflows reached $100bn amid a 50% share price fall.

Tech giants' latest earnings announcements include Microsoft's solid earnings, and Google's bounce-back advertising sales.

Credit Suisse witnessed $69bn customer outflows in Q1, with $28bn of inflows reported by UBS.

What Caught Our Attention

The EU's "solidarity lanes" for Ukrainian agricultural exports have led to a glut in eastern Europe, prompting Poland, Hungary, Slovakia and Bulgaria to impose import bans on maize, wheat, sunflower oil, sunflower seeds and rapeseed. The value of imports of these goods has risen more than 1,500% to $4.3bn.

The EU has denounced the bans and agreed to provide €100m from its crisis reserve to farmers in the five countries, as well as imposing its own ban on the five fastest-growing products until 5 June. However, farmers remain concerned, and Poland has approved a $2.4bn aid scheme for farmers, many times larger than the EU package, and insists that the import ban will continue until the end of the year.

Source: Kredens Capital, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia