European stock market collapses and fear of a major crisis grows

The European stock market is on a downward trend as the main market stimuli, such as the Bank of England’s, lose momentum in the pan-European area. As noted, the Bank of England’s (BoE) reservation for the market to announce a large-scale tax cut had its impact on the market for a while, but this impact is already fading.

The STOXX Europe 600 is among the stock market indexes whose growth rate plunged, losing 1.59% to 383.23. The benchmark French stock index, the CAC 40, lost 77.80 points or 1.35% to 5,687.21 and the German DAX index is also experiencing a downward dynamic with a 1.45% drop to 12,006.32.

Market reactions to inflation and fears of an impending recession have not improved the recovery. Key indicators showed that the British economy is under even more pressure, with the British pound plunging to its lowest level against the U.S. dollar. To date, the pound has lost 1% of its value to trade at $1.078.

The current British government’s attempt to cut taxes across the board has led to a collapse and confidence in the government to restore normalcy in the market is fading. The deeper the downtrend goes into the financial ecosystem, the harder it will be to regain confidence and it is likely that investors will shift their purchasing power overseas.

The UK has a thin reserve at the moment, as the throes of inflation and an impending recession are a pain world, which means that other economies are not necessarily better off. The U.K.’s closest neighbor, the European Union, saw its economic sentiment indicator, a tool that aggregates surveys of business and consumer confidence, fall to 93.7 from 97.3, its lowest point since November 2020.

Oversold conditions in European equities could last for a long time yet

The oversold conditions we’re currently seeing in European equities could continue, according to Wells Fargo’s Chris Harvey.

“The spike in short-term interest, retail bias, and BOE action all suggest that stocks will continue their oversold bounce over the next few days” he wrote in a note to clients Wednesday. According to the analyst, rising capital cost growth and high price levels have made a recession an inevitable fate for most economies.

“We consider a recession as a car accident“, he wrote. “You never know how bad it will be, but there is virtually no ‘better than expected’ outcome – so policymakers need to be careful what they wish for.“

Given these fears, some central bankers around the world will have to be extra careful with planned and subsequent interest rate hikes to at least limit the degree to which they move into recession.