European stocks opened sharply lower on Thursday as investors digested the third straight 0.75 point rise by the US Federal Reserve and braced themselves for a similar move by the Bank of England later in the day.
The pan-European Stoxx 600 was down 1.15% in early deals, with all major regional bourses lower.
Policymakers have signalled that more pain is to come in an effort to combat soaring inflation – something they had dismissed a year ago as transitory in the wake of the Covid pandemic.
Traders and investors alike fear that aggressive tightening could tip the global economy into recession.
“In a way the decision to delay the UK rate decision by a week due to the passing of Queen Elizabeth II could well have worked in the MPC’s favour, as they now have full visibility of how the Fed sees its rate path into the end of this year,” said CMC Markets analyst Michael Hewson.
“Of course, that only works if they come to the correct conclusion from last night’s events. After last night’s Fed decision, the pound has now fallen over 16% year to date, and even more than that over the last 12 months.”
“While there was little surprise in last night’s Fed decision, today’s decision by the Bank of England is probably more finely balanced, although it shouldn’t be given the recent announcements by the UK government, and the various fiscal measures taken to alleviate the rise in energy prices.”
“Talk of a 50bps move almost seems ludicrous with the pound at current levels, with the potential for even larger declines in the coming weeks. The Bank of England will probably need to go by 75bps at the very least today, to try and keep a check on the inflationary impulse of a weaker exchange rate, as well as the net effect of the government’s fiscal measures to ease the burden on consumers.”
In equity news, Polymetal shares fell after the Russian gold producer reported lower first half output and swung to a net loss.
JD Sports Fashion was also lower after posting lower profits and warning the second half could be hit by inflation and supply-chain constraints.
Reporting by Frank Prenesti at Sharecast.com
