European shares fall after Fed’s hawkish signals on interest rates

Tech stocks led European shares lower on Wednesday following hawkish signals on interest rate policy from Federal Reserve chairman Jerome Powell.

Property stocks also slid as the prospect of more rate rises stoked fresh concerns about mortgage costs after UK inflation failed to slow down in May.

Dublin

The Iseq closed flat amid the subdued sentiment, as gains for building materials group CRH and Ryanair kept the Irish market from slipping more than fractionally. The airline closed up 1.2 per cent at €16.68, while the cement-maker climbed 1.5 per cent to €48.75.

But Smurfit Kappa was a heavy faller, dropping 5.75 per cent to €31.00, and other stocks also struggled, with insulation-maker Kingspan down 2.3 per cent at €56.46, Flutter Entertainment down 0.7 per cent at €12.80 and Bank of Ireland succumbing to the slide European banks with a 0.3 per cent fall, closing at €9.52.

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London

The FTSE 100 edged down 0.1 per cent while the mid-cap FTSE 250 index dropped 0.9 per cent as a still-high inflation reading deepened worries that the Bank of England (BoE) may keep interest rates higher for longer, a day before it meets to set rates.

Data showed British inflation defied predictions of a slowdown and held at 8.7 per cent in May, putting yet more pressure on the BoE a day before it is expected to raise interest rates for the 13th time in a row.

Rate-sensitive home builders slumped 3.2 per cent on concerns over elevated mortgage rates following the inflation data, and also dented by a 1.6 per cent fall in Berkeley Group Holdings following a demand warning.

British banks were among the biggest drag on the FTSE 100, with NatWest Group and Lloyds Banking Group losing 4 per cent and 2.4 per cent respectively, after Exane BNP Paribas downgraded the stocks. Helping cut losses, heavyweight energy stocks gained 1.9 per cent, tracking higher crude prices.

Halfords jumped 8.3 per cent on plans to grow its bikes and car parts’ market share to boost profits, while THG advanced 6.8 per cent on expecting a significant increase in first-half profit. AO World gained 5.7 per cent after Davy Research raised the online electricals retailer’s rating to “outperform” from “neutral”.

Europe

The continent-wide STOXX 600 index closed 0.5 per cent lower, extending declines to the third consecutive session, after Mr Powell said the fight against inflation still “has a long way to go” and despite a recent pause in rate hikes officials were in agreement borrowing costs would probably still need to move higher.

Rate-sensitive tech stocks shed 1.6 per cent, while real estate stocks fell by the same percentage.

Shares of Kojamo slid 5.4 per cent after Barclays double-downgraded the Finnish residential real estate company’s stock, while postal operators Deutsche Post and PostNL fell 2.6 per cent and 1.7 per cent respectively.

A survey showed a slowdown in the Chinese and global economies is the biggest issue affecting European firms in China, beating political tensions with the US and decoupling.

New York

Wall Street’s main indexes fell in early trading as Mr Powell remained firm in bringing inflation back to 2 per cent target, spurring worries of more monetary tightening. Mega-cap companies struggled to gain as yields on the two-year treasury notes, which move in line with interest rate expectations, rose marginally.

FedEx slid 0.3 per cent after the shipping firm reported a decline in quarterly earnings and said global shipping downturn has hurt margins for the sector. Fellow postal operator United Parcel Service slipped 1.2 per cent.

Adobe added 1 per cent after brokerage BMO Capital Markets turned bullish on the stock, citing generative artificial intelligence strength. – Additional reporting Reuters