European shares slump as U.S. rate hike, sanctions anxiety weigh

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European shares fell almost 2% on Wednesday, as investors grappled with the twin worries of aggressive U.S. interest rate hikes potentially hurting growth and more Western sanctions on Russia further stoking inflation.

Breaking a three-day winning streak, the pan-European STOXX 600 index (.STOXX) fell 1.5% to log its worst day in nearly a month. Losses were broad-based, with technology (.SX8P) and travel stocks (.SXTP) the biggest drags.

U.S. Federal Reserve Governor Lael Brainard said on Tuesday she expected interest rate rises and a rapid balance sheet runoff to take U.S. monetary policy to a “more neutral position” later this year. Her comments sparked a global selloff.

“Markets are responding to an anticipated faster, steeper tightening in U.S. monetary policy than previously considered… The Fed appears willing to tolerate any impacts such a move may have on growth and stock markets – European indices are all losing ground,” said Stuart Cole, head macro economist at Equiti Capital.

Adding to the pessimism were fears around rising inflationary pressures yet to be felt from the war, Cole added.

The U.S. announced a new round of sanctions targeting Russian banks as well as Kremlin officials and their family members on Wednesday, while the EU proposed to ban Russian coal and even oil imports on Tuesday.

Further fuelling concerns about slowing growth, data showed German industrial orders fell more than expected in February on weaker demand from abroad.

Calls for more tightening by the Fed ahead of minutes from its last policy meeting come as European Central Bank members voiced the need to curb stimulus to keep inflation expectations from rising beyond the central bank’s 2% target. The ECB’s next policy meeting is next week.

European equity funds faced their first monthly outflow in two years last month as the war and energy prices hurt prospects for profit growth and margins this year.

Election nerves also continued to grip investors, with French stocks (.FCHI) falling 2.2% after marking their worst session in nearly a month on Tuesday.

President Emmanuel Macron would beat Marine Le Pen in France’s presidential election, leading the first round on April 10 and winning later on April 24, a poll showed, though Le Pen has gained ground in recent weeks.

Among individual stocks, Danish wind turbine maker Vestas (VWS.CO) fell 3.2% after it said it would withdraw from Russia, where the firm has two factories.

Shares of Siemens Gamesa (SGREN.MC), another wind turbine maker, dropped 6.2% on reports that turbine parts fell into a sea at a wind farm in Denmark.

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