August 26, 2022
18:32
The impact of high inflation was felt in European equity markets, particularly in the retail and real estate sectors. The energy stood out.
While analysts’ eyes remained on Jackson Holeinvestors have also chosen to turn their attention to another hot topic, l’inflation. On the equity markets in Europe, it is clear that the impact of high energy prices has caused tumults of anxiety. The Stoxx 600 dropped 2.58% over the week.
Examination of the weekly performances of the various sectors of the Stoxx 600 shows that the big losers were found among retail (-9.14%) and real estate (-5.8%). In the retail compartment, clothing chains H&M, Zalando, Inditex (Zara) and JD Sports dropped more than 8% Friday-over-Friday as in the United States, Nordstrom and Macy’s lowered their profit outlook due to excess inventories, which both groups will have to sell at knockdown prices in order to sell them.
Across the Atlantic, consumers cut spending on consumer discretionary goods to offset the effects of high energy and food prices. Investors are betting that in Europe, where gas prices continue to rise, consumers will also arbitrate. Analysts have also started to worry regarding the results of groups like H&M in the third and fourth trimesters. The Swedish clothing group suffered three analyst price target cuts this week. At Deutsche Bank, analysts expect a difficult third and fourth quarter for the company, as weak consumption combines with high transport and production costs, not to mention the impact of fluctuations in the Change market.
Existential crisis in real estate
“Real estate groups are facing an existential crisis as access to capital is sharply reduced and borrowing costs are high.”
On the real estate side, the biggest falls were observed not among Swedish companies, but among British groups such as Land Securities et British Land. The European leader in commercial real estate, Unibail-Rodamco-Westfield, was also found in this ranking, with a weekly decline of 8.09%. “Building cost inflation and escalating borrowing costs are putting pressure on property yields and reducing commercial property values.” Susan Munden, analyst at Bloomberg Intelligence, believes that “real estate groups are facing an existential crisis, as access to capital is severely reduced, and borrowing costs are high”. At the Brussels Stock Exchange, the logistics specialist WDP (-5.47%) also fell on this outlook.
Swedish bands like SBB, Castle and Wales have also seen their shares fall, but less than the other companies in the Stoxx 600 Real Estate, whereas since the beginning of the year, they have posted the biggest declines in Europe. Swedbank, Sweden’s central bank, warned this week that property prices might fall 15% as economic growth slows. Sweden is one of five countries, along with Britain, New Zealand, Australia and Canada, at risk of a more serious problem with house prices in the context of the current economic downturn, according to the OECD. .
Energy, big winner
“The energy sector was supported by soaring gas prices which boosted demand for diesel and by Saudi Arabia which signaled the risk that OPEC+ would cut production to stabilize volatile markets.”
The sector of energy (+3.46%) took advantage of the rise in gas prices. “The energy sector was supported by soaring gas prices which boosted demand for diesel and by Saudi Arabia which signaled the risk that OPEC+ would cut production to stabilize volatile markets”, notes Ole Hansen, Head of Commodities Strategy at Saxo Bank.
The compartment of mining stocks (+1.44%) also stood out in Europe, thanks to the aid plan for a total of more than 1,000 billion yuan from Beijing to support its economy. “Industrial metals received a boost from China’s continued efforts to support its weakened economy by announcing more stimulus policies that would pump billions into infrastructure projects,” said Ole Hansen.
The decline of the dollar once morest other currencies gave a boost to mining stocks and the energy sector. The greenback saw hesitant sessions ahead of the start of the Jackson Hole symposium, and Jerome Powell’s long-awaited speech this Friday. He said a restrictive policy will likely be needed for some time.
The euro failed to sustainably rise above $1 following falling to $0.99 last Tuesday amid reports that several members of the European Central Bank want to discuss a 75 basis point rate hike at the next monetary policy meeting.
Gold prices did not benefit from the ups and downs of the dollar, or fears of inflation. Higher interest rates dampen the appeal of assets that don’t pay a dividend. The ounce of gold fell by 0.6% to 1736.63 USD over the week.
The summary
- The retail sector suffered from the backlash of investors’ fears regarding the impact of inflation on consumer behavior.
- Real estate values have fallen due to a bleak outlook.
- The energy compartment benefited from the rise in gas prices in Europe.
- The euro rallied once morest a nervous dollar ahead of Jerome Powell’s speech in Jackson Hole.
