European shares slip as Credit Suisse drags banks lower after profit warning

[June 08, 2022]  By Susan Mathew

(Reuters) - European shares fell on Wednesday as a 6% slide in Credit Suisse following a profit warning dragged on lenders, while investors braced for the European Central Bank's meeting on Thursday and the U.S. Federal Reserve's next week.

The pan-European STOXX 600 index was last down 0.3%, giving up opening gains. [MKTS/GLOB]

Banks fell 0.7% after Credit Suisse said it was likely to see a group-wide loss in the second quarter as volatility hit its investment bank.

"The question is whether banks are able to manage the volatility intelligently, and (the Credit Suisse warning) basically then makes people nervous overall," said Sebastien Galy, a senior macro strategist at Nordea Asset Management.

Capping the losses, energy stocks advanced as oil prices traded higher on expectation of low U.S. inventories. [O/R]
 

Retailers, which slid on Tuesday after U.S. peer Target warned of a further margin squeeze, rose 1.6%, with Zara-owner Inditex up 4.6% after reporting an 80% jump in net profit for the February-April period.

Meanwhile, money markets ramped up their bets on ECB rate hikes to price in 75 basis points of increases by September as inflation hit record high last month.[ECBWATCH]

The central bank has so far signalled hikes starting in July, and markets had earlier priced in two 25 basis-point rises.

"It's very difficult for the ECB to deliver 50 bps in July because it would create a great amount of uncertainty, a sense of panic from the ECB regarding inflation," Galy said.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, June 2, 2022. REUTERS/Staff

Markets have run out of steam as surging prices, tightening monetary policies and uncertainties stemming from the Ukraine war keep investors worried about recession.

Some hopes come from an easing of COVID-19 restrictions in China, the world's second-largest economy, but its zero-COVID strategy is still a worry.

"As the pressure on consumers' real spending power intensifies and new supply issues emanating from China's zero-COVID strategy could strike, the risks are not necessarily to the upside from here," said Citigroup strategists.

Data released on Wednesday showed German industrial production recovered but rose less than expected.

Among other stocks, Wizz Air slipped 5.5% after the European budget airline reported a bigger annual loss on soaring fuel costs and said it was deploying extra resources to minimise disruptions from staff shortages and supply-chain snags.

Swedish online gaming group Kindred jumped 10.8% after it was granted a gambling licence in the Netherlands.

(Reporting by Susan Mathew in Bengaluru; Editing by Subhranshu Sahu)

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