European stock investors are expected to brace for a correction of up to 10% by the end of the year, have warned Bank of America analysts who predict slower economic growth in the region.

“We believe the macroeconomic backdrop for equities is shifting from golden loops (higher growth, lower discount rate) to anti-gold loops,” a team of strategists led by Sebastian Raedler said on Friday in a statement. note to customers. They see the Stoxx 600 SXXP,
-0.33%,
which was down 0.4% to 452.81, reaching 420 by the end of the year.

Analysts have pointed to one of the main drivers for European equities, the Eurozone Purchasing Managers Index (PMI), which “is now falling sharply as the reopening wears off, with a further decline likely to as growth normalizes over the next few months “.

Data released on Friday showed the Euro zone manufacturing PMI falling to 58.6 in September from 61.4 in August, posting the biggest drop since April 2020, according to IHS Markit.

“Supply issues continue to wreak havoc across large swathes of European manufacturing, with delays and shortages reported at rates not seen in nearly a quarter of a century and showing no signs of imminent improvement.” Chris Williamson, chief economist at IHS Markit, said in a press release.

Raedler said the downside risks to their growth forecasts are mounting “given energy shortages in China and Europe, the debt crisis in the Chinese real estate sector and the continued disruption in the supply chain. supply”.

Another piece of the bearish puzzle is the possibility of bond yields rising as central banks become more hawkish, which the bank plans to continue. A secondary factor in the rally in European equities since March 2020 has been a nearly 200 basis point drop in real bond yields, the strategist said.

The bank lowered European capital goods, autos and diversified financials from the market weight to the underweight, due to the decline implied by a weaker macroeconomic cycle, and shifted the mining sector from underweight to market weight, citing projections that indicate there will be no further declines until early next year.

European stocks were softer on Friday, after the worst monthly performance in a year.

For September, the Stoxx Europe 600 fell 3.4%, the biggest percentage drop since October 2020 which broke with a seven-month winning streak. Among the major regional indices, the German DAX DAX,
-0.58%
down 0.6%, the French CAC 40 PX1,
-0.09%
0.3% and the UK FTSE 100 UKX,
-0.69%
fell 0.8% on Friday. The euro EURUSD,
+ 0.11%
and GBPUSD pound,
+ 0.56%
both rose against the dollar.

Eurozone and UK grapple with rising energy prices, as natural gas futures continue to set new records. November Ease of Securities Transfer (TTF) Dutch natural gas futures– the European benchmark – continues to break new records, although down 3.3% to 94,455 euros per megawatt hour (MWh) on Friday.

A surge that began this summer amid natural gas shortages in the UK and the continent, pushed that price down to around 45 euros at the end of August. Crude prices soared on Thursday following a report that Chinese Vice Premier Han Zheng ordered major state-owned energy companies to guarantee winter supplies at all costs, as the country grapples with power outages = blackout.

Eurozone finance ministers meeting Monday in Luxembourg are expected to discuss the energy crisis facing the region and soaring consumer price bills. Public services have been one of the few sectors to progress, with the electricity giant Électricité de France EDF,
+ 6.20%
up 5.8%. Shares of National Grid NG based in the United Kingdom,
+1.40%
increased by 2%.

Pharmaceuticals, banks and industrial names led the decline on Friday. AstraZeneca shares AZN,
-1.58%

AZN,
-2.65%
fell more than 2%. Shares of the multinational conglomerate Siemens SIE,
-2.55%
plummeted by 3%. BNP Paribas shares BNP,
-1.19%
fell more than 1%.


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