Record high inflation pushes eurozone shares to session lows

[May 31, 2022]  By Susan Mathew

(Reuters) -Eurozone shares hit session lows on Tuesday after data showed inflation rose to a record high in May, spurring bets of bigger interest rate hikes by the European Central Bank (ECB).

Inflation in the 19 countries sharing the euro accelerated to 8.1% in May from 7.4% in April, beating expectations for 7.7% as price growth continued to broaden, indicating that it is no longer just energy pulling up the headline figure.

The STOXX index of eurozone shares dropped 0.9% and the pan-European STOXX 600 index, which was flat before the data, fell 0.6%.

The euro region's banks, which typically welcome signs of rising interest rates, slid 1% as investors worried about the hit to the economy from surging prices.
 

"We see that the high energy inflation is rapidly translating into companies pricing through higher input costs to their consumers as well ... it's clearly a sign of broadening inflation," said Bert Colijn, senior economist, eurozone at ING.

"This is resulting in market expectations of perhaps ECB acting more quickly," Colijn said, but added that ING still expects the central bank to hike rates by 25 basis points in July and September.

Investors will closely watch for any change in the ECB's stance after its meeting next week. The central bank has so far signalled that it will begin its interest rate hiking cycle in July, with the rate seen rising to 0% or above by September.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 30, 2022. REUTERS/Staff

The STOXX 600 was set to end May down over 1%, adding to sharp losses earlier this year on concerns over central bank tightening, fallout from the Ukraine conflict and China's tough COVID-19 curbs.

Fuelling concerns about inflation, Brent crude hit $123 per barrel after Europe vowed to cut most Russian oil imports in the bloc's toughest sanction on Moscow since the invasion of Ukraine three months ago.

London's FTSE outperformed with a 0.2% gain, powered by a 6.2% jump in consumer goods giant Unilever after it named activist investor Nelson Peltz to its board.

Dutch speciality chemicals maker DSM jumped 6.3% on plans to merge with Swiss peer Firmenich. DSM also announced the sale of its engineering materials subsidiary for 3.85 billion euros ($4.13 billion) to private equity firm Advent International and German chemicals company Lanxess

Lanxess surged 10.8%.

(Reporting by Susan Mathew in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)

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