EUROPEAN stocks fell on Thursday (Dec 19), with the benchmark Stoxx recording its biggest single-day drop since early November as investors fled riskier assets after the US Federal Reserve signalled a slower pace of interest rate cuts next year.
The pan-European Stoxx 600 index closed 1.5 per cent lower, hitting a three-week low, with all the major sub-sectors in the red.
Global equities ran into turbulence after the Fed cut rates as expected on Wednesday, but chair Jerome Powell said more reductions in borrowing costs now hinged on further progress in lowering stubbornly high inflation.
“The Fed now expects inflation to get to target later, in 2026, and that current policy rates are significantly closer to neutral,” said Mahmood Pradhan, head of global macroeconomics at Amundi Investment Institute.
“Confirming rates higher for longer – (Fed) median raised to 3.9 per cent from 3.4 per cent – led to a significant market reaction, a much stronger US dollar, a sharp increase in Treasury yields and equity indices markedly lower.”
On Thursday, Wall Street staged a minor rebound after US stocks posted their biggest daily decline in months in the last session.
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Rate-sensitive real estate was amongst the top decliners, down 2.4 per cent, while the tech index also dropped 2.4 per cent after megacap giants suffered big losses overnight on Wall Street.
Chip stocks including ASML, Infineon Technologies and STMicroelectronics fell between 3.7 per cent and 6.2 per cent, also hurt by US firm Micron Technology’s bleak quarterly forecast.
A volatility gauge for eurozone stocks jumped to its highest in over three weeks.
Meanwhile, the Bank of England kept its benchmark Bank Rate on hold at 4.75 per cent, as expected, though policymakers were split over whether to cut interest rates, with more officials than expected seeking to help the slowing economy with lower borrowing costs.
“The surprise element is there are three (committee) members voting for a rate cut. So on balance, it’s less hawkish than markets were broadly expecting,” said Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin.
The UK’s blue-chip FTSE 100 dropped 1.1 per cent, swept up in a broader market sell-off.
Sweden’s central bank cut its key interest rate by a quarter of a percentage point, as expected, while Norway’s central bank held its policy interest rate unchanged at a 16-year high of 4.5 per cent.
Among individual movers, SoftwareOne Holding jumped 7 per cent after the Swiss technology firm announced a deal to buy Crayon Group that valued its Norwegian competitor at around US$1.34 billion. Crayon’s shares fell 4.1 per cent. REUTERS
