European stocks dropped sharply on Tuesday, Dec 12, 2022, as traders awaited the release of inflation data later in the week. The pan–European STOXX 600 index traded 1.3 percent lower, with sectors including travel and leisure and basic resources among the worst performers.
The European Central Bank is expected to release inflation data on Wednesday, Dec 13, 2022, and the market is expecting it to be lower than the previous month. This could put a damper on the recent rally in European stocks that has been fueled by hopes of a global economic recovery.
The decline in European stocks comes as investors remain cautious about the outlook for inflation. The European Central Bank has said that it is targeting an inflation rate of just below 2 percent, but the latest data shows that the inflation rate has been falling.
Lower inflation could be a sign that the European economy is struggling to recover from the pandemic. Many countries in the region have been hit hard by the health crisis and the resulting economic downturn.
The decline in European stocks also follows a sell–off in U.S. stocks on Monday, Dec 11, 2022. The Dow Jones Industrial Average fell more than 500 points as investors were concerned about the possibility of higher taxes under a Biden administration.
Investors are also concerned about the possibility of increased regulation in the financial and tech sectors under a Biden administration. This could be a risk to corporate profits as companies may have to adjust their business models to comply with new regulations.
The decline in European stocks is also due to concerns about the Brexit negotiations. The UK and the European Union have been negotiating an agreement on the future relationship between the two sides, but so far, there have been few signs of progress.
Investors are also worried about the political situation in Italy, where the government has been unable to form a coalition. This could lead to more political uncertainty in the country, which could weigh on investor sentiment.
Despite the decline in European stocks, some analysts remain optimistic about the outlook for the region. They argue that the economic recovery could be stronger than expected in 2021 as the vaccine rollout continues across the continent.
Overall, it remains to be seen how the release of inflation data will affect European stocks. Investors are likely to remain cautious until the data is released, and any further developments in the Brexit negotiations and the Italian political situation are also expected to impact sentiment.