European shares slide to 21-month low on mounting recession worries

A media report said the European Union had threatened a "robust and united response" to probable pipeline attacks. "Damaging the infrastructures clearly pushes the tensions between the West and Russia to a no-turning point, and dashes hopes of seeing an improvement anytime soon – both on the geopolitical and energy fronts," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

European shares slid 1% on Wednesday, in line with a sell-off in Asian markets, as an intensifying energy crisis in the region and the relentless surge in global bond yields fuelled worries about a recession.

The continent-wide STOXX 600 index was down 1%, hitting its lowest since late-December 2020, and extending declines to a fifth session. Germany's DAX index lost 1.2%, taking cues from Wall Street, which sank deeper into a bear market overnight.

Geopolitical tensions intensified as Europe investigated what Germany, Denmark and Sweden said were attacks on two Nord Stream pipelines at the centre of an energy standoff. A media report said the European Union had threatened a "robust and united response" to probable pipeline attacks.

"Damaging the infrastructures clearly pushes the tensions between the West and Russia to a no-turning point, and dashes hopes of seeing an improvement anytime soon – both on the geopolitical and energy fronts," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. Reflecting the grim economic outlook, a survey projected German consumer morale would hit a record low in October as high inflation rates and rocketing energy bills show no signs of relenting.

Meanwhile, tech stocks came under pressure as the benchmark 10-year U.S. Treasury yields topped 4%, their highest in 12 years, amid fears the Federal Reserve might have to take rates past 4.5% in its fight against inflation. "That fear has now gripped the markets and we may see a little more caution going forward as the Fed has made it clear that one inflation reading doesn't make a trend and it will take a lot more than that to convince it that it can afford to ease off the brake," said Craig Erlam, senior market analyst, UK & EMEA, OANDA.

"Other central banks may have a lot more work to do; one in particular springs to mind, thanks to the misguided direction the government is taking the country in," Erlam said, referring to the Bank of England. London's blue-chip FTSE 100 index dropped 1.4% after the International Monetary Fund and ratings agency Moody's criticised Britain's new economic strategy.

All sectoral indexes on STOXX 600 fell, with the economy-sensitive oil and gas, basic resources, retailers and banks sectors down between 1% and 1.8%. Shares of fish farmers such as Mowi, Leroy Seafood and SalMar dropped between 15% and 20.2% after the Norwegian government proposed a resource tax on salmon and trout farming of 40% from the tax year 2023.

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