European stocks fall as hot U.S. inflation data sparks rate hike fears

By Devik Jain and Amruta Khandekar

(Reuters) – European stocks reversed gains on Thursday after another hot inflation reading from the United States spurred expectations that the Federal Reserve was likely to stay aggressive in its fight against inflation.

The region-wide STOXX 600 index fell 1.3% after rising as much as 0.8% earlier in the session following reports that the UK government was discussing making changes to the fiscal plan announced last month that had sparked a rout in bond markets.

Data showed U.S consumer prices increased more than expected in September, reinforcing expectations that the Federal Reserve will deliver a fourth 75-basis points interest rate hike next month. The so-called core CPI jumped 6.6% in the 12 months through September.

“The key aspect of today’s release is the continued rise in core inflation,” said Willem Sels, global chief investment officer, Global Private Banking and Wealth at HSBC.

“Until the Fed sees some evidence of slowing core inflation and bottoming of labour market indicators, such as rising unemployment or slowing job openings, it is unlikely to change course.”

Minutes from the Federal Reserve’s September meeting showed on Wednesday that officials stressed the need for more restrictive policy to tame inflation.

The STOXX 600 has fallen 4.3% in the last six days, with markets worried about central banks’ aggressive policy moves to tackle high inflation and recent warnings from the International Monetary Fund and the World Bank about a recession.

Latest data confirmed German harmonised inflation was +10.9% y/y in September, while consumer prices (CPI) in Sweden, measured with a fixed interest rate, rose 1.1% from August.

With third-quarter earnings season on the horizon, investors are focussed on how the management at Europe Inc projects earnings outlook at a time when inflation is at a record high and a recession is widely expected.

Most of the STOXX 600 sectors were in the red, led by technology stocks that were down 5.0% to hit their lowest since May 2020.

European semiconductor companies fell after chip-making technology supplier Applied Materials Inc said export restrictions to China would result in a $250 million-$550 million loss in net sales in the quarter ending Oct. 30, with a similar impact expected in the following three months.

Shares of Infineon, ASML, ASMI, BESI and Aixtron slid between 4% and 9%.

Norwegian aluminium producer Norsk Hydro jumped 4.3% after reports that the United States was weighing restricting imports of Russian aluminium.

(Reporting by Devik Jain in Bengaluru; editing by Uttaresh.V, Neha Arora and Shinjini Ganguli)