European stocks are expected to close 2022 on bearish sentiment as global markets prepare to close trading later today. Fueled by the ongoing war between Russia and Ukraine, record inflation, and monetary policy tightening, the eurozone economy is expected to experience further headwinds in 2023 and beyond. In addition, the euro’s derivative against the U.S. dollar falls below the ratio of 1 for the first time since the 2008 financial crisis in 2022.
Nevertheless, European equities are not immune to the global selling pressure that has continued into 2022. In addition, crypto-currencies and large U.S. technology companies have trended lower over the past 12 months.
Notably, the STOXX Europe 600 Index continuous contract has lost about 12% over the past twelve months. In the middle of the London session, the FTSE 100 traded at 7,497.01, down about 0.21%.
The poor performance of stocks, however, coincided with rising food, oil and gas prices, fueled by the Russia-Ukraine war and subsequent sanctions.
As such, market strategists expect developed economies to struggle to post growth over the next decade.
“I think we’re probably going to enter a decade of very, very low growth, in which the developed economies are going to get lucky with 1% growth per year, if they can do it…“Daniel Lacalle, author and chief economist at Tressis Gestion.
Taking a closer look at European equities in 2022
European stocks have experienced more headwinds in recent months after the Kremlin imposed an indefinite oil cutoff on eurozone countries. The European standoff is expected to continue long after the White House recently announced $1.85 billion in military aid for Ukraine, including a transfer of the Patriot air defense system.
As the war escalates, market strategists fear it could escalate into World War III. The situation did not improve after Covid restrictions significantly disrupted global supply. As the sanctions affect individual companies, analysts expect next year’s growth to be driven by fundamentals.
“Next year, I don’t think it’s going to be the Fed that drives the market, I think it’s going to be the companies, the fundamentals, the companies that can grow their earnings, defend their margins, probably move higher“, said Patrick Armstrong, chief investment officer at Plurimi Wealth LLP, on “Squawk Box Europe” of CNBC on Friday.
The UK’s Brexit continues to be a hectic maneuver for most companies when it comes to managing their supply chain. In addition, the obligations once set by the European Parliament for member states have changed significantly.
In particular, the European Union is poised to launch its digital euro to bolster its ailing economy.