Eurozone shambles: Crisis engulfs Brussels as EU member hits 37-year record high inflation

Rail strike: Raab warns pay rise to 'fuel vicious cycle of inflation'

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European shares fell on Wednesday, as fears about a global recession deepened after chiefs of the European Central Bank and US Federal Reserve Chairman stuck to their hawkish stance. The continent-wide STOXX 600 index dropped 0.7 percent, snapping a three-day rally.

Losses were broad-based, led by real estate and auto sectors, which fell 3.5 percent and -2.6 percent, respectively.

Banks and miners were among the other big drags.

The era of ultra low inflation that preceded the pandemic was unlikely to return and central banks needed to adjust to significantly higher price growth expectations, European Central Bank (ECB) President Christine Lagarde said.

Spain’s state-owned National Statistics Institute revealed on Wednesday that inflation rose 1.5 points in June and closed on a year-on-year rate of 10.2 percent, the highest level since 1985.

Rising energy and food prices are crippling the country’s economy.

Core inflation in Spain which does not include fuel or food has already reached a year-on-year rate of 5.5 percent, the highest level since 1993.

Food prices in May were already at their highest increase rate in three decades.

Fed Chair Jerome Powell said that while there was risk of recession, the bigger risk is rising prices.

“Given the skittish nature of investors right now, Powell’s comment about controlling inflation requiring ‘some pain’ was bound to cause more investors to hit the sell button,” said Chris Beauchamp, chief market analyst at online trading platform IG.

“It does look like we are still in the first phase of this bear market… So far a sustained bounce seems unlikely.”

The STOXX 600 has shed 15 percent this year and set for its worst quarter since the COVID-19 led carnage in 2020, as uncertainty about Russia-Ukraine war, soaring price pressures and central bank policy moves to tame it dampen risk appetite.

“Markets know we are in a slowdown, what they are grappling with is where growth slows to and how quickly,” said strategists at TS Lombard.

“Our base case is a recession across major markets.”

Meanwhile, data on Wednesday showed German inflation dipped against expectations in June, but analysts warned against seeing it as an early end to price pressures as the figures were driven by one-off effects.

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The STOXX 600 has shed 15 percent this year and set for its worst quarter since the COVID-19 led carnage in 2020, as uncertainty about Russia-Ukraine war, soaring price pressures and central bank policy moves to tame it dampen risk appetite.

“Markets know we are in a slowdown, what they are grappling with is where growth slows to and how quickly,” said strategists at TS Lombard.

“Our base case is a recession across major markets.”

Meanwhile, data on Wednesday showed German inflation dipped against expectations in June, but analysts warned against seeing it as an early end to price pressures as the figures were driven by one-off effects.

A separate survey showed economic sentiment in the euro zone was slightly more robust than forecast thanks to improving morale in the industrial and services sectors.

But Germany’s DAX was still down 1.7 percent following a three-day rally.

Spain’s blue-chip index IBEX fell 1.6 percent, as preliminary data showed Spanish 12-month inflation accelerated to a higher-than-expected 10.2 percent in June, the first time since April 1985, from 8.7 percent in the previous month.

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