The growth-inflation mix has 'deteriorated quite a lot'. Damage is already done (e.g., chemical companies raising prices, lower confidence, falling PMIs). Even a quick resolution leaves lasting impacts.

Europe is badly hit due to energy dependence. Difference from 2022: the shock is more global now, so Europe is relatively less hit but still an absolute negative. UK GDP forecast cut from 1.5% to 0.5%.

Initially, bonds sold off more than equities. European markets held up a bit better due to less exposure to US-specific issues (private credit, AI valuation concerns) and a larger energy sector providing an offset.

If yields fall due to lower inflation expectations, it's good for equities. If due to growth concerns, it's bad—favor defensives (staples, utilities, telecoms) over cyclicals.

Higher yields help net interest margins, but the offset is a suffering UK consumer and SMEs, raising risks of higher provisions for bad loans. Not good for valuations.

After initial post-Ukraine war selling, foreign and domestic investors returned to Europe in the last 12-15 months. In the last 2-3 weeks, outflows have resumed, especially from foreign investors who had sought diversification from expensive US exposure.

Selling is global, not Europe-specific. Driven by concerns over global growth and inflation dynamics.

The longer it goes on, the more it hits the growth-inflation mix and raises the specter of stagflation, which would not be sustainable for markets at current levels.