European stocks slumped to their lowest in two months on Friday, as warnings from companies and factory activity data highlighted the economic headwinds from supply-chain constraints and elevated prices.
The Europe-wide STOXX 600 fell 0.4 percent in a weak start to October, which has traditionally been a rough month for equities, with technology, miners and banks leading broad declines.
The STOXX 600 ended the week down 2.2 percent.
Online electricals retailer AO World PLC tumbled 24.3 percent, saying that a shortage of delivery drivers in Britain and other disruptions in the global supply chain hit revenue growth in the first half of the year.
Meanwhile, a survey showed that eurozone manufacturing growth remained strong last month, but activity took a big hit from supply chain bottlenecks, which are likely to persist and keep inflationary pressures high.
“Just because it appears the ECB [European Central Bank] will maintain its policy for the foreseeable future, doesn’t mean that higher inflation should be ignored,” Equiti Capital UK Ltd market analyst David Madden said.
Underwhelming figures from Asian factories and overnight losses on Wall Street dented the global mood as investors awaited a report that is expected to show eurozone inflation surged to a 13-year high.
With government bond yields surging to multimonth highs and concerns about inflation coming to the fore, the benchmark STOXX 600 closed last month 3.4 percent lower in its worst monthly showing in almost a year.
“For equities, this combination of slowing growth — albeit at a high level of demand — rising inflation and higher bond yields has meant slightly higher volatility, lower market returns and a rotation beneath the surface,” Goldman Sachs strategist Sharon Bell said in a note. “It hasn’t helped that earnings revisions have also started to slow from their frenetic pace earlier in the year.”
Bank of America Global Research cut its outlook for European stocks, predicting a decline of nearly 10 percent by year-end given a shift in the macro backdrop toward “anti-goldilocks,” where slowing growth is accompanied by higher discount rates.
BMW AG rose 1.3 percent after lifting its annual profit margin forecast as higher prices for new and used vehicles outweighed the effect of supply-chain issues.
French state-owned utility EDF SA and energy group Engie SA rose 5.9 percent and 2.5 percent respectively, with traders pointing to relief that electricity tariffs were untouched by the French government in its plan to check further price rises.
France’s biggest telecoms group Orange SA fell 0.8 percent after it said it would buy insurer Groupama’s 21.7 percent stake in Orange Bank, its online banking unit.
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