European shares drop as policymakers seek to tame hot inflation

European shares dropped on Monday, while bond yields surged as comments from central bank policymakers heightened fears of aggressive measures to stamp out inflation amid rising risks of a recession, Reuters reported.
The STOXX 600 (.STOXX) index fell 0.9% to a more than one-month low, with interest rate-sensitive tech stocks (.SX8P) tumbling 1.8%. Germany’s 10-year yield rose 10 basis points (bps) to a two-month high.
European Central Bank (ECB) board member Isabel Schnabel warned over the weekend that central banks must act forcefully to combat inflation even if that dragged economies into recession, while governing council member Francois Villeroy and policymaker Martins Kazaks also signalled another big rate step in September. read more
Their comments followed Federal Reserve Chair Jerome Powell’s warning on Friday that the U.S. central bank would raise rates as high as needed to restrict growth and keep them there “for some time”. read more
Markets are pricing in a two-thirds chance that the ECB could hike rates by 75 bps in September, up from 24% last week. read more
Flash August consumer price index numbers due Wednesday are likely to show that inflation in the euro area remains uncomfortably high. read more
The volatility gauge for euro-zone stocks (.V2TX), widely known as ‘Europe’s fear index’, jumped to a six-week high of 29.4.
Stocks are set for a nearly 3% drop just over the last two sessions, as the combination of big rate hikes to cool rampant euro-zone inflation, a looming recession and an energy crunch weighs on sentiment.
After nearly erasing June’s selloff last month, the STOXX has shed almost 4% so far in August.
Among stocks, one of the few gainers was French drugmaker Valneva (VLS.PA), rising 0.9% on positive late-stage trial results for its COVID-19 shot.
Real estate stocks (.SX86P), among sectors viewed as “defensive” or safer bets during times of economic uncertainty, saw the slimmest losses amid a broad-based STOXX 600 selloff.
Markets in the United Kingdom were closed on Monday for a holiday.