Big fashion retailers drag European shares lower

The pessimism on the European retailers' results overshadowed hopes of smaller interest rate hikes and cautious optimism about the U.S. banking sector. The STOXX 600 posted its biggest one-day gain in nearly three months on Tuesday, on optimism that the U.S. Federal Reserve will tone down its rate-hiking spree next week in the aftermath of Silicon Valley Bank's (SVB) collapse.

European shares fell on Wednesday as disappointing results and warnings from Inditex and H&M, two of the world's largest fashion retailers, weighed down the broader retailing sector index.

The pan-European STOXX 600 index fell 1.0%, with retailers shedding 2.9%. Shares of Zara-owner Inditex, the world's biggest fashion retailer, fell over 3% after it flagged higher investment spending, which took the shine off a jump in 2022 sales.

H&M, the world's second-biggest fashion retailer, slid 6.0% after a smaller-than-expected increase in sales over the December to February period came as the latest sign that it is struggling to compete with Inditex. The pessimism on the European retailers' results overshadowed hopes of smaller interest rate hikes and cautious optimism about the U.S. banking sector.

The STOXX 600 posted its biggest one-day gain in nearly three months on Tuesday, on optimism that the U.S. Federal Reserve will tone down its rate-hiking spree next week in the aftermath of Silicon Valley Bank's (SVB) collapse. All eyes will now be on the European Central Bank, which is still leaning towards a half-percentage-point rate hike on Thursday, despite turmoil in the banking sector, as they expect inflation will remain too high in coming years, a source told Reuters.

"Barring a further escalation of the stress over the coming days, we still expect the Fed and ECB to envisage further rate hikes in March," Vincent Chaigneau, head of research at Generali Investments wrote in a note. "A 50bp hike by the Fed appears highly unlikely, but we still deem a 25bp move more likely than a pause."

An on-target reading on U.S. inflation on Tuesday further aided in the repricing of a smaller interest rate hike by the central bank. Later in the day, UK finance minister Jeremy Hunt will present the spring budget. London's FTSE 100 index fell 1.0%.

Prudential fell 5.9%. The Asia-focused insurer reported a rise in full-year year profit, while its Chief Financial Officer James Turner said it had a $1 million exposure to Silicon Valley Bank which was 'minimal' against a total debt book of $23 billion. The utilities sector rose 0.1% after E.ON , Europe's biggest operator of energy networks, rose 2.0%, as it planned to raise investments in its businesses by 33 billion euros ($35 billion).

TotalEnergies slid 2.5% after some 42% of operators at the company's French refineries and depots continued their strike for an eighth day over the government's planned changes to its pension system.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)