European shares deepen losses after hawkish Fed comments

Commodity markets were also hit by the Fed, with European energy stocks falling 2.9 per cent yesterday, in line with lower oil prices. — Reuters pic
Commodity markets were also hit by the Fed, with European energy stocks falling 2.9 per cent yesterday, in line with lower oil prices. — Reuters pic

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LONDON, June 19 — A slide in European bank and energy stocks was exacerbated by hawkish comments from a Federal Reserve official, which also saw the STOXX 600 index snap a four-week winning streak as fears of US policy tightening came to the fore.

The pan-European STOXX 600 index ended 1.6 per cent lower in its worst day in five weeks, with bank and energy stocks leading declines. The index also dropped 1.2 per cent this week.

Sentiment was also dented by the European Union losing its bid for speedier Covid-19 vaccination deliveries from UK drugmaker AstraZeneca, which could slow the pace of a steady vaccination campaign.

The banking sector, which typically does well when interest rates are high, plunged nearly 3 per cent as concerns over an eventual reduction in liquidity saw investors locking in recent gains.

Fed official James Bullard said the Fed could start tightening rates by as early as late 2022, calling it a natural response to economic growth and inflation moving quicker than expected, as the United States reopens from the Covid-19 pandemic.

His comments came after the Fed signalled a hawkish tilt earlier this week, which had rattled risk-driven markets.

Commodity markets were also hit by the Fed, with European energy stocks falling 2.9 per cent yesterday, in line with lower oil prices.

Basic resources stocks were the worst performers this week, down nearly 8 per cent as fears over Chinese caps on copper prices weighed. The sector had its worst week since the peak of the Covid-19 pandemic in March 2020.

“The market has been polarised in certain positions,” said Andrea Cicione, head of strategy at TS Lombard.

“We’ve been very positive on financials and energy since last November and now we’re seeing a reversal of that as investors scale back. But this is temporary phase; there’s definitely more upside for financials and energy, which are still relatively cheap.”

Germany’s DAX index fell 1.8 per cent as data showed a bigger-than-expected jump in May producer prices.

Bank of Ireland tumbled 7 per cent to the bottom of the STOXX 600, after it announced the sale of some non-performing mortgage exposures.

Danish pharmaceutical company Orphazyme sank 44 per cent after saying it had failed to win support from the US Food and Drug Administration for its arimoclomol drug, a treatment designed for genetic disorder Niemann-Pick disease type C.

Tesco, Britain’s biggest retailer, fell 4.1 per cent as it reported a sharp slowdown in quarterly underlying UK sales growth, while car dealership Inchcape rose 3 per cent after raising its annual profit forecast. — Reuters

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