European Stocks Slip As UK Inflation Accelerates, Central Bankers Remain Hawkish

Negative news flows are trickling out of Europe ahead of Wall Street's opening bell on Wednesday.

All European stock indices traded deeply in the red, as investors panicked after a fresh acceleration of inflation in the U.K. and a deadlock in U.S. debt limit discussions.

What Happened: U.K. inflation came in at 8.7% annually in April. That's down from 10.1% in March, but well above the 8.2% expected.

Inflation accelerated 1.2% on the month, more than the 0.8% expected.

The U.K. core inflation rate, which excludes food and energy and provides a more accurate picture of the root causes of inflation, increased by a more alarming 6.8% yearly — much above the 6.2% forecast and the highest level since March 1992.

Core inflation soared by 1.3% on a monthly basis, far more than the predicted 0.7%.

Traders revised upward their estimates for rate increases from the Bank of England and now fully factor in an additional 100 basis points of hikes in 2023, with rates predicted to peak at 5.5%.

On Tuesday, European Central Bank speakers delivered hawkish comments, with Governor Christine Lagarde stating that "rates are to stay restrictive for as long as necessary."

In Germany, the Ifo Business Climate indicator for May, dropped from 93.4 to 91.7, falling short of forecasts of 93.0. This is the first monthly decrease in Germany's business conditions since October, as the outlook worsened due to recent hikes in interest rates and persistently high inflation. 

Elsewhere, stocks in China, tracked by the Shangai Shenzen CSI 300 index, pulled back to levels unseen since mid-December 2022, erasing all gains made in the year. 

Chart of The Day

U.K. core inflation climbs to 30-year highs, but Bank of England rates remain well behind.

European Stock Reactions

• All major averages fell more than 1% during the day, with the Euro Stoxx 50 index down 1.2%.
• The SPDR DJ Euro STOXX 50 Etf FEZ, which tracks the index of the 50 largest capitalized European firms, is down 0.8% in the pre-market.
• LVMH Moet Hennessy Louis Vuitton LVMHF, the biggest European company by market cap, fell 1.8%, after plunging 5.5% on Tuesday.
• L'Oreal SA LRLCY dropped 1.9%. Banks were also weaker across the board.
• Both Allianz SE ALIZF and Banco Santander, S.A. SAN slipped 2.4%
• BNP Paribas BNPQF declined 1.8%.
• The carmaker Volkswagen AG VLKAF fell 2.2%.

Stock Heatmap for the Euro Stoxx 50 Index On May 24 08:30 AM ET – Chart: Tradingview

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