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European stocks sharply lower; banking sector hit hard

Published 03/10/2023, 05:02 PM
Updated 03/10/2023, 05:02 PM
© Reuters.

By Peter Nurse - European stock markets traded sharply lower Friday as nervousness ahead of the widely-watched U.S. jobs report and weakness in the banking sector overshadowed better-than-expected U.K. growth data.

At 03:40 ET (08:40 GMT), the DAX index in Germany traded 1.7% lower, the CAC 40 in France dipped 1.9% and the FTSE 100 in the U.K. fell 1.6%.

Sentiment has been hit hard by Jerome Powell’s semi-annual testimony to Congress this week, with the chairman of the U.S. Federal Reserve saying the central bank was prepared to quicken the pace of rate hikes to battle persistent inflation. 

Investors are wary ahead of the U.S. payrolls release later in the session, with Powell mentioning this data point as one of the key indicators framing the Fed's thinking. 

Nonfarm payrolls are expected to have increased by 205,000 jobs last month, a slowdown from the blockbuster 517,000 added in January, but another upside surprise is a possibility given Powell’s hawkish tone.

The market is now increasingly betting that March's rate decision by the Fed will be a half-percentage point hike, an acceleration from the 25 basis point increase in early February.

Back in Europe, U.K. gross domestic product rose 0.3% in January, an improvement from the hefty drop of 0.5% in December, with this resilience in the face of soaring prices and industrial unrest boosting hopes the country’s economy may avoid a lengthy recession. 

German consumer prices, harmonized to compare with other European Union countries, rose by 9.3% on the year in February, a climb of 1.0% on the month. This suggests the European Central Bank still has its work cut out to rein in inflation in the Eurozone.

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The European banking sector slumped Friday, following the lead on Wall Street overnight after SVB Financial's (NASDAQ:SIVB) announcement of a $2.25 billion equity raise after revealing a $1.8B net loss and crypto bank Silvergate Capital's (NYSE:SI) decision to wind down operations.

Losses were widespread, with HSBC (LON:HSBA) stock falling 5.1%, BNP Paribas SA (EPA:BNPP) stock down 4.5% and Deutsche Bank (ETR:DBKGn) slipping 7.2%.

Swedbank (ST:SWEDa) stock fell 5.4% after the Nordic lender said it will book a provision of around $3.7M to do with a U.S. investigation over the bank's "historical shortcomings".

Elsewhere, Daimler Truck (ETR:DTGGe) stock fell 2.9%, caught up in the negative overall sentiment despite the company announcing it will pay its first dividend after hitting its 2022 targets and expects higher earnings and revenue this year.

Oil prices fell Friday, and are heading for their worst weekly loss in five weeks on concerns steep interest rate hikes in the U.S. will stymie economic activity and thus crude demand in the largest consumer in the world.

Also weighing on sentiment this week has been disappointing economic data out of China, the largest oil importer in the world, suggesting its economic recovery will take some time.

By 03:40 ET, U.S. crude futures traded 0.8% lower at $75.13 a barrel, while the Brent contract fell 0.6% to $81.12. Both benchmarks were on course to lose about 5% this week.

Additionally, gold futures rose 0.3% to $1,840.30/oz, while EUR/USD traded 0.2% higher at 1.0598.

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