The overselling that is currently being seen in European stock may be extended, according to Wells Fargo’s Chris Harvey.
The European stock market is on the downtrend as key market boosts like that from the Bank of England are losing their momentum across the pan-European area. As observed, the cushion the Bank of England (BoE) intended for the market for announcing a broad-based tax cut had its impact on the market for a while, but this impact is fading already.
The STOXX Europe 600 (INDEXSTOXX: SXXP) is amongst the stock index with a plunged growth rate, dropping 1.59% to 383.23. The benchmark French stock market index, CAC 40 (INDEXEURO: PX1) slipped 77.80 points or 1.35% to 5,687.21 and the German DAX PERFORMANCE-INDEX (INDEXDB: DAX) is also seeing a bearish momentum with a 1.45% drop to 12,006.32.
The market’s reactions to inflation and the fears of the fast-approaching recession have not made recovery any better. Key indices have shown that the British economy is under even bigger pressure with the Pound Sterling plunging to its lowest level against the US Dollar. As of today, the Pound lost exactly 1% of its value to trade at $1.078.
The attempt by the current UK Government to slash taxes across the board has resulted in a cataclysmic sell-off that the confidence in the government to restore normalcy to the market is becoming faded. The longer the bearish trend eats deep into the financial ecosystem, the more difficult it will be to regain confidence and there is a likelihood that investors will shift their spending powers abroad.
The UK has a thin cushion at this time as the pangs of inflation and an impending recession are a global pain, meaning other economies are not necessarily better off. The UK’s closest neighbor, the European Union saw its economic sentiment indicator, a tool that collates business and consumer confidence surveys drop to 93.7 from 97.3 its lowest point since November 2020.
European Stock Oversold Stance May Last Much Longer
The overselling that is currently being seen in European stock may be extended, according to Wells Fargo’s Chris Harvey.
“The spike in short interest, retail selling skew, and BOE’s action all suggest stocks will continue their oversold bounce for the next few days,” he wrote in a note to clients Wednesday. According to the analyst, the increasing capital cost growth and high price levels have made a recession an inevitable fate for most economies.
“We look at a recession like a car crash,” he wrote. “You never know how bad it will be, but there is almost no ‘better-than-expected’ outcome — so policymakers need to be careful what they wish for.”
With these fears, some central bankers around the world will have to take extra caution with projected, subsequent interest rate hikes to at least curb the degree of the shift into recession.
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