European shares tumble on corporate warnings ahead of German inflation data

European shares tumbled on Thursday as a host of companies, including Swedish group H&M, warned about the effect of rising inflation and costs on their business, dampening the mood ahead of the release of expected red-hot German inflation data.

The continent-wide STOXX 600 index was down 1.7 percent by 0759 GMT, failing to track a 2-percent surge on Wall Street overnight and as the boost provided by the Bank of England’s emergency bond buying move fizzled out.

Shares of H&M fell 4.5 percent after the world’s second-biggest fashion retailer reported weaker-than-expected profits due to soaring input costs, slowing consumer spending and its exit from Russia.

Market leader Inditex, the owner of Zara, slipped 2.2 percent, while the wider STOXX retailers index slid 4.3 percent.

Poland’s Allegro lost 6.8 percent after the e-commerce firm trimmed its full-year guidance for the second time this year, saying high inflation could lower demand.

The disappointing corporate updates magnifies investors worry about a hit to earnings growth at a time when Europe is headed for a darker winter due to an ongoing energy crisis and central banks across the world tighten financial conditions to quell rampant inflation.

Four European Central Bank policymakers on Thursday backed another big interest rate hike, with the case for 75-basis-point increase in October strengthening, after data showed inflation in Germany’s most populous state saw a biggest jump in decades.

A flash estimate for nationwide September inflation is due later in the day, with analysts expecting EU-harmonized consumer prices (HICP) to increase by 10 percent on the year in September.

The ECB has raised rates by a combined 125 basis points over its past two meetings.

“The recent statements suggest that the ECB intends to reach the neutral level rapidly, but that there is little conviction on whether the depo rate needs to be lifted deep into restrictive territory,” UniCredit strategists wrote in a note.

“Today’s inflation numbers, together with some 15 appearances by ECB representatives, are likely to reinforce expectations of front-loaded interest-rate hikes and could thus act as a trigger for a resumption of the curve-flattening process.”

Euro zone economic sentiment data for this month is also scheduled at 1000 GMT.

Among other stocks, Next dropped 10.2 percent after the British clothing retailer its cut profit and sales forecasts, saying August trading was below expectations and cost of living pressures were set to rise in the coming months.

Rational jumped 10.8 percent after the German kitchen appliance maker raised its sales revenue and profit forecast for 2022.