European markets close 2% lower as recession fears take hold; oil shares down 6%

LONDON — European stocks closed sharply lower on Tuesday, as global markets failed to cement gains after a bruising week for stocks last week.

The pan-European Stoxx 600 closed down by 2.1% provisionally, with oil and gas stocks falling 6.8% to lead losses as almost all sectors and major bourses slid into negative territory.

The euro also fell to its lowest level in two decades on Tuesday as fears of a recession in the euro zone ramped up, with gas prices soaring and the Ukraine war showing no signs of abating.

The July Sentix Economic Index on Monday showed investor morale across the 19-country euro zone has plunged to its lowest level since May 2020, pointing toward an "inevitable" recession.

In terms of individual share price movement, Dechra Pharmaceuticals added more than 4% after RBC upgraded the British veterinary products company's stock to "outperform."

At the bottom of the European blue chip index, Rheinmetall plunged more than 12% after Deutsche Bank offered a downbeat outlook on the German defense giant's upcoming second-quarter results, due in August.

Shares of German mass media company ProSiebenSat.1 fell more than 9% after Goldman Sachs downgraded the stock to "sell" from "neutral."

European markets failed to build on solid momentum after the region's indexes closed higher on Monday, albeit wrapping up a quieter day for global markets given the July Fourth holiday in the United States.

However, fears of an impending recession as central banks tighten monetary policy to rein in soaring inflation have continued to induce volatility in global stock markets.

U.S. stock futures also whipsawed on Tuesday morning to trade lower as earlier momentum fizzled out. Markets stateside are looking ahead to publication of the U.S. Federal Reserve's minutes from its latest Federal Open Market Committee meeting on Wednesday.

U.S. data releases this week also include the June jobs report on Friday. According to Dow Jones estimates, job growth likely slowed in June, with 250,000 nonfarm payrolls added, down from 390,000 in May. Economists surveyed expect the unemployment rate to hold at 3.6%.

Shares in the Asia-Pacific region mostly traded higher overnight as the Reserve Bank of Australia raised interest rates by 50 basis points to 1.35%, in line with expectations.

Central bank action is also likely to guide market sentiment in Europe this week. The Bank of England is due to publish its latest biannual Financial Stability Report on Tuesday. The European Central Bank is set to publish accounts of its latest monetary policy discussion on Thursday.

On the data front, June's euro area services PMI (purchasing managers' index) came in at 53.0, slightly above a consensus forecast of 52.8 but down from 56.1 in May.