- Italy's MIB index drops 2.2% on political worries
- Hugo Boss results drive gains in some luxury stocks
- TSMC results lift chipmakers
July 14 (Reuters) - European shares fell on Thursday, as rising bets of more aggressive rate hikes by the Federal Reserve fed into recession fears, while Italy's main index tumbled 2.2% as the country's government faces collapse.
The pan-European STOXX 600 index slipped 0.7% with losses being largely broad-based. It had fallen 1% on Wednesday when U.S. inflation hit a near 41-year high, spurring bets that the Fed could go for a bigger hike than the 75-basis-point move markets had priced in for this month.
Global equities have taken a hit this year as central banks attempt to tame surging inflation, leaving investors worried about the impact on economic growth. The STOXX 600 is down about 16% so far this year, while the S&P 500 and a gauge of world stocks are down about 20% each.
"There is a recessionary fear that continues to be on top of investor minds," said Bert Colijn, senior economist, eurozone, at ING.
But he adds that worries also stem from a bigger discrepancy between the European Central Bank and the Fed as the former is seen sticking to a 25-basis-point hike next week despite inflation at record highs.
Energy, banks and miners were among the biggest drags on the STOXX 600, while defensive sectors such as healthcare, telecoms and real estate fell between 1% and 2.3%.
Meanwhile, a euro at parity to the dollar is seen as more trouble for euro zone inflation.
At the ECB meet next week, investors will be watching for any comments on the euro's drop and its tool to control widening euro zone bond spreads as well as inflation forecast and hints on the magnitude of future hikes.
Italy's MIB index moved closer to its lowest since November 2020 after the 5-Star Movement said it will not take part in a parliamentary confidence vote later in the day, a move that looked likely to trigger the collapse of Prime Minister Mario Draghi's government.
Italian bond yields rose sharply, widening spreads with German counterparts.
"There is going to be conditionality involved in (the ECB's anti-fragmentation tool), which means that countries are likely going to have to do something before the ECB is going to intervene in markets to keep spreads at acceptable levels," ING's Colijn said.
In earnings, some luxury stocks rose after German fashion house Hugo Boss jumped 3.7% on raising its 2022 outlook.
Chipmakers rose after Taiwan's TSMC forecast revenue growth that could be the highest in 10 quarters.
Reporting by Susan Mathew in Bengaluru; Editing by Rashmi Aich and Krishna Chandra Eluri
Source: Reuters