Europe midday: Shares pare morning losses but still in the red

European markets pared morning losses on Thursday after an early slump sparked by US Federal Reserve chairman Jerome Powell, who warned interest rates would rise aggressively until soaring inflation was tamed.
The pan European Stoxx 600 index was down 0.46% by late morning, having been down 1.14% in early deals. All major bourses were lower.

“Markets remain on the back foot as the latest comments from the Federal Reserve did little to assuage investor concerns,” said Interactive Investor head of markets Richard Hunter.

“Indeed, there seems no end in sight in the immediate future for this situation to change. Comments from Fed Reserve Chair Powell made their position clear. Interest rates will continue to rise, and at an accelerated pace, until there is ‘compelling evidence’ that inflation is beginning to wane.”

This in turn decreases the likelihood of a soft landing for the economy, which the Fed fully recognises. Of course, the central “bank is not attempting to induce a recession, but the outcome of its current stance is increasingly likely to provide one.”

In economic news, business growth in the eurozone eased in June to a 16-month low as prices continued to surge and demand stalled, according to a survey released on Thursday.

The S&P Global flash eurozone composite purchasing managers’ index – which measures activity in both the services and manufacturing sectors – fell to 51.9 from 54.8 in May, coming in below consensus expectations for a reading of 54.0.

A reading above 50.0 indicates expansion, while a reading below signals contraction.

In the UK, official data revealed the government borrowed more than forecast in May after a 70% surge in interest payments to service the national debt.

The budget deficit stood at £14bn, £2 billion higher than economists had predicted. Overall government spending was higher than the Office for Budget Responsibility predicted in March, and receipts lower.

In equity news, shares in Polymetal bucked the trend and were up, despite saying it was still struggling to establish new sales channels for silver bullion, resulting in lower cash-flow generation. However, gold sales from its Russian mines to Asian markets had returned to a regular schedule after a significant coronavirus-related slowdown in April and May.

Shares in European real estate investor Aroundtown fell after a downgrade to ‘sell’ by JP Morgan.

Shares in ecommerce group THG gained after Citi resumed coverage with a ‘buy’ rating and 220p price target.

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