Europe open: Shares slide on hawkish Fed as eyes turn to BoE

by | Sep 21, 2023

(Sharecast News) – European stocks opened in the red on Thursday after hawkish comments from the US Federal Reserve on future rate rises dampened sentiment and investors turned their attention to the Bank of England’s own policy meeting.
The pan-European Stoxx 600 index was down 0.78% in early trade with all major bourses lower. US and Asian markets were also down overnight after the Fed decided to keep interest rates unchanged from the 5.25-5.5% range, as was widely expected by the market. This was the second time this year where its rate-hiking cycle has been paused.

However, 12 of the 19 voting FOMC members said they expect to raise rates once more this year, at one of the two remaining meetings in November or December. Furthermore, looking further forward, the committee indicated that interest rates would only be lowered to around 5% by the end of 2024, indicating that they remain committed to a “higher-for-longer” strategy.

At a press conference following the meeting, chair Jerome Powell said he still needed to see “convincing evidence” that higher interest rates are having the desired effect on inflation before the FOMC can begin to loosen monetary policy.

The comments, which dragged US stock markets into the red, will likely have worried UK investors ahead of the BoE’s own Monetary Policy Committee meeting, given recent optimism that today’s expected interest-rate hike – by 25 basis points to 5.5% – will be the last in the central bank’s current cycle.

There are also interest rate decisions Thursday in Turkey, Sweden, Switzerland and Norway.

”Nervousness is pervading sentiment as investors assess the prospects of interest rates staying higher for longer. The mood is being driven by the US Federal Reserve taking a defensive stance in the fight against inflation, pausing for now but signalling a fresh rate hike to come,” said Hargreaves Lansdown analyst Susannah Streeter.

“While Fed officials are keeping the boxing gloves on ready to spring into action again, there is increased speculation the Bank of England may call time on hikes although it is still expected to keep interest rates at elevated levels until later next year.”

In equity news, shares in JD Sports Fashion jumped as the sports leisurewear retailer posted a rise in interim profits and said it expected annual earnings to rise 5% on strong sales.

UK fashion retailer Next also gained after lifting guidance for the third time in four months after strong summer sales boosted half-yearly profits.

Reporting by Frank Prenesti for Sharecast.com

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