By Samuel Indyk

LONDON, (Reuters) – A Reuters poll revealed that the tightening of central bank policies, fear of a recession, and economic effects of war in Ukraine will all help to limit any increase in European stock prices for the rest of 2022.

A poll of 21 analysts and strategists from fund management firms predicted that the pan-European Index would rise to 450 points at the end of 2013, a 3.1% increase over Monday’s close.

European shares are down more than 10% in the first quarter of this year. This is their worst start since the 2020 COVID outbreak and their second-worst start ever since 2008.

Graphic: STOXX 600 year to date – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoxndkvr/Pasted%20image%201653380583417.png 4c7e9da7-d9b5-4034-89cb-c2f9a862c7701

The European stock market is falling despite positive earnings reports for the first quarter. According to Refinitiv I/B/E/S, this season should show an expected 41.5% rise in earnings. The earnings, which exclude the energy sector are projected to have increased 22.4%.

The outlook is uncertain as regional equities face a variety of headwinds in the second half, which could cloud earnings growth prospects.

Stephane Ekolo from Tradition, global equity strategist, said that the unstable backdrop is caused by ongoing conflict in Ukraine, persistent inflation, and an increase risk of recession.

Ekolo stated that “we are still cautious on equities due to the very difficult geopolitical backdrop combined with the risk of margins pressures,” and predicted the STOXX 600 Index would fall approximately 55 points to 385 by the end.

Poll respondents cited one of the biggest risks as the slow pace at which central bank, including the European Central Bank(ECB) will tighten policy in the coming year in an effort to control inflation. [ECILT/EU]

Christine Lagarde of European Central Bank stated on Tuesday that the ECB deposit rate was at “zero” or “slightly higher” at the end September. This would indicate a 50-basis point rise from its current level.

Money market participants are pricing in more than 100 basis points of ECB rate increases by year’s end.

“The ECB moving aggressively on monetary policy, especially when a growth slowdown is expected will weigh negatively on the region,” said Philipp Lisibach, chief global strategist at Credit Suisse.

Lisibach also highlighted that the outlook for the eurozone equities is affected by high energy prices, spillovers from the Ukraine conflict and an even stronger euro.

In 2011, the ECB raised its interest rate. Since then, it has maintained a deposit rate in negative territory.

The poll showed that 14,000 points ended the year as the benchmark country, a slight drop from Monday’s close price.

100 could be seen at 7,494 at year’s end, which was unchanged from Monday’s close. Meanwhile, 40 saw a slight increase to 6,400.

(Other stories taken from the Reuters global Stock Markets poll package: