European Markets Plunge 2%, ASOS, Boohoo Dop On Falling Sales

Bridgette Randall
16 Jun, 2022
New York City

European markets plunged after the U.S. rate hike was followed by increases in Switzerland and the U.K. and sparked economic recession worries. 

The Fed's aggressive rate increase and reiteration of its commitment in fighting inflation stoked fears of looming U.S. recession. 

The Fed also lowered its 2022 economic growth outlook to 1.7% from 2.8% and lifted its unemployment projection to 3.7% from 3.5% in March. 

The Fed's tough approach to inflation also signaled its readiness to slow down the U.S. economy sparking fears of global economic weakness.  

The DAX index declined 2.7% to 13,125.74, the CAC-40 index plunged 1.9% to 5,917.17, and the FTSE 100 index dropped 2.5% to 7,089.01 

The Bank of England lifted rates by 25 basis points to 1.25%, fifth consecutive rate increase in a row. 

The pound dropped 0.78% to $1.2085 after the rate decision. 

The Bank of England also lifted its inflation outlook to "slightly above 11%" by October on rising energy prices. 

The U.K. economy unexpectedly declined 0.3% in April after falling 0.1% in March, the Office of National Statistics had reported a week ago. 

The back-to-back monthly economic growth declines were last seen in March and April 2020. 

The Swiss National Bank lifted its key benchmark rate by 50 basis points from -0.75% to -0.25%, the first rate increase since 2007. 

The SNB also said it is prepared to act in foreign exchange market and defend the Swiss franc if necessary. 

SNB President Thomas Jordan said that the anticipatory rate increase step was taken to stem the inflation spreading from goods and services sectors of the economy that are not affected by the war in Ukraine and pandemic restrictions. 

Roche Holdings declined 1.6% to 302.90 Swiss francs after the pharmaceutical company suffered a setback the development of its crenezumab drug for the treatment of Alzheimer's disease.

 The pharma company admitted that the development stage drug failed to slow cognitive decline in patients.  

ASOS plc plunged 29.2% to 820.78 pence after the online fashion retailer reported sales in the quarter ending May were flat at 983.4 million pounds. 

"The net sales were impacted by a significant increase in returns rates in the UK and Europe towards the end of the period, reflecting inflationary pressures on consumers which has a disproportionate impact on profitability," said the retailer. 

The company also lowered its gross margin estimate for the year and added  "gross margin now expected to be between 150bps and 200bps adverse, as elevated returns are expected to drive higher levels of markdown and a continuation in the negative impact of returns on product mix."

Boohoo Group Plc plunged 11.1% to 57.70 pence after the fashion retailer said March quarter sales declined 8% to 445.7 million pounds. 

Gross margins declined 220 basis points to 52.8% from a year ago but rose 240 basis points from the second-half in the previous year. 

CapGemini SE dropped 2.1% to 166.0 euros and the French IT services company said it plans to open semiconductor design services centers in several location in Europe. 

Automakers were in focus after European passenger car registration declined in May, the tenth monthly decline in a row. However, the pace decline slowed in May. 

BMW, Renault, Volkswagen, and Stellantis NV declined between 3% and 5%.