Shares in Ireland and the rest of Europe experienced a decline in the latest session, wiping out all gains for the week. This was due to concerns about the possibility of central banks maintaining hawkish policies for a longer period of time, which overshadowed optimism surrounding cooling inflation. The Stoxx 600 Index dropped by over 1% despite data on Thursday indicating a slowdown in inflation rates in the US. However, on Friday, a US producer price index reading that exceeded expectations fueled speculation that the US central bank would keep interest rates higher for a longer duration. Investors are now worried that the European Central Bank will also maintain elevated interest rates.
Within Europe, technology and property firms led the decline, while financial services and utilities outperformed. In Ireland, AIB shares lost 2.6%, Bank of Ireland fell by 1.5%, and Permanent TSB declined by almost 2%. Despite this, Irish banks have been on a remarkable winning streak as they have benefited from increased profits resulting from European Central Bank rate rises.
After two consecutive months of growth, the European stocks benchmark has experienced a pullback in August, primarily driven by concerns about higher interest rates and a lackluster corporate earnings season. According to Bank of America, outflows from regional stock funds have extended for 22 consecutive weeks. However, Sanford C Bernstein strategist Sarah McCarthy believes that the valuation gap between European and US equities “is now more extreme than ever,” making European stocks more attractive. McCarthy reiterated an overweight recommendation for Europe compared to the US in a research note.
Meanwhile, data from Britain revealed that the economy grew more strongly than expected in the second quarter. This growth was attributed to a resurgence in activity in June following an additional bank holiday for King Charles III’s coronation. Neil Birrell, the chief investment officer at Premier Miton Investors, commented that these figures would put the Bank of England in a tight spot in the coming months.
In conclusion, shares in Ireland and Europe experienced a decline due to concerns about central banks maintaining hawkish policies. However, European stocks remain attractive compared to their US counterparts. Additionally, the British economy performed better than expected in the second quarter, posing a challenge for the Bank of England in the near future.