By Barbara Kollmeyer
European stocks fell Thursday, as the region’s central bank surprised with plans for a faster exit from its bond-buying program, while a lack of progress on negotiations between Ukraine and Russia also weighed on investors.
The Stoxx Europe 600 index /zigman2/quotes/210599654/delayed XX:SXXP +0.30% slid 1.5% to 427, following a 4.6% surge on Wednesday, the biggest one-day percentage gain since an 8.4% jump on March 24, 2020.
The German DAX /zigman2/quotes/210597999/delayed DX:DAX +0.36% lost 2.8% after rallying 7.9% on Wednesday, also its best since that March date. The French CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 +0.19% slid 2.7% and the FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +0.30% dropped 1.3%.
Bond yields climbed after the European Central Bank left key interest rates unchanged, but said it would adjust its Asset Purchase Program, or APP, in the months ahead to take into account “the uncertain environment,” as it called Russia’s invasion of Ukraine a “watershed for Europe.”
The yield on the 10-year German bund /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y -4.88% climbed 4 basis points to 0.263%, while the euro slumped 0.6% to $1.1008.
In a press conference, Lagarde said the Russia-Ukraine war posed a risk to the economy and inflation, as the central bank cut its growth forecast to 3.7% versus a previous forecast of 4.2%.
“The twin winds of rising inflation and economic growth uncertainties driven by the Ukraine crisis are creating the need for an uncomfortable balancing act. The hope is that the key buffers of a weak euro, increased fiscal spending and a zero-bound ECB interest rate can offset much of the potential damage,” said Ben Laidler, global markets strategist, at eToro, in a note to clients.
Also lowering forecasts was Goldman Sachs, which now sees euro-area 2022 GDP at 2.5% from 3.9% due to the Russia-Ukraine war. The bank said recent tightening of financial conditions, trade spillovers linked to Western companies pulling out of Russia and rising energy prices would pressure economies.
“Fourth, we anticipate production cuts due to further energy supply disruptions from Russia given the dependence of the euro area on Russian oil and gas, especially in Germany and Italy,” said a team led by chief European economist Sven Jari Stehn, in a note to clients on Thursday.
U.S. stocks opened lower on Thursday, a day after the S&P 500 logged its best session since June . The global equity rally came amid a 13% slump in oil prices, reversing a similar gain in the prior session the U.S. announced a ban on Russian energy imports. Oil prices /zigman2/quotes/209723049/delayed CL00 +4.31% were back up on Thursday.
Some views that global markets have oversold, and optimism ahead of high-level talks between Ukraine and Russia had also lifted markets higher Wednesday. But Thursday’s negotiations in Turkey ended with no progress on a 24-hour cease-fire to help evacuate civilians.
Among stocks on the move, Apparel and footwear, autos and banks were leading the downside, while mining stocks rose, along with pharmaceutical names.
Shares of Credit Suisse /zigman2/quotes/202835784/composite CS +2.51% fell 1.9%. The Swiss lender said its net credit exposure to Russia stood at 848 million Swiss francs ($915.2 million) as of Dec. 31, though that has been reduced since.
Bayer /zigman2/quotes/206842998/delayed XE:BAYN -0.13% shares fell 0.8%. The German multinational pharmaceutical and life sciences company said it would sell its environmental science business to private-equity firm Cinven for $2.6 billion.