European shares retreat as markets mull hawkish US Federal Reserve

EUROPEAN shares slipped on Thursday (Jun 18) as investors increased bets on a US Federal Reserve rate hike later in 2026 after policymakers struck a hawkish tone, though easing oil prices offered some relief on inflation.

The pan-European Stoxx 600 index closed 0.3 per cent lower, snapping a five-day winning streak. Regional bourses were mixed, with France and Germany posting gains while Italy and Spain declined.

Britain’s FTSE 100 ended the day 1 per cent lower as losses in heavyweight energy and healthcare stocks weighed.

The Bank of England kept interest rates on hold at 3.75 per cent in June, judging it premature to raise rates given uncertainty about inflation pressures.

Across Europe, oil and gas shares eased 1.5 per cent as oil prices fell to their lowest level since the first trading day of the Iran war. US President Donald Trump signed a deal with Iran to end the war that has disrupted global energy supplies.

The interim pact has brought relief for markets, with energy-price-sensitive travel and leisure shares rising 0.8 per cent on Thursday. However, that relief ran short in the face of monetary policy uncertainty.

New US Fed chairman

In the US, the Fed held rates steady on Wednesday, but nine policymakers projected one rate hike in 2026. In an early sign of new Fed Chairman Kevin Warsh’s influence, the central bank’s statement removed guidance about future rate moves.

“Transitions like this are unsettling for markets. Toss in economic and political volatility, and you get a combination that will confront, confound, confuse and upset Warsh’s plans to pull the Fed into his promised land,” said Steven Blitz, chief US economist at GlobalData.TS Lombard.

The European Central Bank raised borrowing costs on Jun 11 and traders anticipate another 25-basis-point rate hike by the end of 2026, according to LSEG-compiled data.

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Mining shares lost 3.1 per cent and were the biggest decliners among the major Stoxx subsectors as commodities came under pressure against a firmer dollar.

Automakers were also at the bottom, with Mercedes-Benz , Volkswagen and Stellantis down between 2.8 and 4.6 per cent. BMW dropped 4 per cent after sliding 8.3 per cent in the last session after issuing a shock profit warning.

European IT services firms dropped sharply after Accenture cut its full-year guidance.

Capgemini hit a six-year low to fall 8.9 per cent while Cancom, Atos and Reply fell between 2 and 6.9 per cent.

Edenred jumped 17.2 per cent as the French voucher company confirmed it had been approached by investment funds, following a media report about possible takeover interest from investment firm BC Partners. REUTERS