European Markets Plunge in October: Inflation Surges, UK Budget Shakes Investors, and Bank Stocks Soar Amid Turmoil!

European stock markets wrapped up October with their steepest monthly fall in over a year, as investors weighed corporate earnings, inflation data, and the UK's recent budget announcement. The pan-European Stoxx 600 index closed down by 1.2%, with every sector and major exchange posting losses. This brings the index's total decline for October to 3.4%, the largest drop since October 2023, according to data from LSEG.

Inflation took center stage as preliminary figures indicated that eurozone inflation rose to 2% in October, surpassing both the 1.9% forecasted by analysts surveyed by Reuters and September's rate of 1.7%. This increase is likely to influence the European Central Bank’s (ECB) approach to interest rates. Economists now suggest the possibility of a 50 basis-point cut in December is less likely, with a smaller 25 basis-point reduction being more plausible.

These figures followed Wednesday’s economic report, which revealed the eurozone economy expanded by 0.4% in the third quarter, exceeding the predicted 0.2% growth rate. Such resilience may strengthen the ECB’s resolve in managing interest rates cautiously, even as inflation shows signs of modest acceleration.

In the UK, housebuilders were particularly affected as government bond yields surged following Wednesday's budget announcement, which outlined substantial tax increases and additional borrowing. This fiscal approach sparked concerns among traders about potential inflationary effects, which could slow the Bank of England’s rate-cutting momentum. Stifel equity researcher Charlie Campbell noted to CNBC that the budget provided limited reassurance for housebuilders, who remain sensitive to interest rate adjustments. However, he added that the sector’s prospects may improve as more third-quarter earnings results are released and as the Labour government outlines housing policies intended to support the sector.

Meanwhile, Societe Generale shares surged by 11.3% after the bank reported a notable 10.5% year-on-year revenue growth in the third quarter. The increase also follows a shakeup in leadership, including the appointment of a new chief financial officer, signaling potential strategic shifts that investors found encouraging.

Across the Atlantic, U.S. markets faced declines for a second consecutive day, impacted by disappointing earnings reports from tech giants. Investors also processed recent economic data revealing that the personal consumption expenditure (PCE) price index—the Federal Reserve's preferred inflation gauge—rose by 2.1% in September, in line with expectations. This keeps inflation firmly on the Fed’s radar as it considers rate policy.

In the Asia-Pacific region, markets also softened as investors reacted to the Bank of Japan's decision to maintain its current interest rate strategy. Additionally, new business activity data from China added to the region's cautious sentiment, reflecting a global market increasingly vigilant about inflationary pressures and the impact of shifting central bank policies.

As European markets closed out October on a downbeat note, global investors continue to monitor inflation trends, corporate earnings, and central bank moves across major economies. The coming weeks may bring further clarity as third-quarter earnings reports roll in and central banks meet to set policy agendas for the year ahead.