Europe: Shares dip after Powell’s hawkish remarks fuel rate hike fears

EUROPEAN shares logged their steepest one-day fall in two weeks on Tuesday (Mar 7) as investors assessed the prospects of a 50-basis point rate hike by the US Federal Reserve following hawkish remarks by chair Jerome Powell.

The pan-European Stoxx 600 index closed 0.8 per cent lower, with real-estate and technology stocks taking a sharp hit.

The Fed may need to raise rates more than expected and is prepared to move in larger steps if incoming information requires tougher measures to control inflation, Powell said in prepared remarks for a hearing before the Senate Banking Committee.

This comes ahead of monetary policy meetings by the Fed and the European Central Bank (ECB) later this month, with markets preparing for another round of rate hikes.

“Markets are repricing the interest rate outlook,” said Patrick Armstrong, chief investment officer at Plurimi Wealth.

“Economies globally are proving pretty resilient so far this year — while that’s good news for growth, it’s bad news for inflationary pressures all the central banks are facing.”

A ECB survey showed inflation expectations among eurozone consumers dropped in January, but that for wage growth continued to rise, aggravating fears wage growth will slow efforts to control prices.

Citigroup economists

expect the ECB to hike rates by 50 basis point both in March and May, pushing its policy rates to about 4 per cent by July. The central bank has raised rates by 3 percentage points since July and flagged a 50 basis point hike for March, while also leaving the door open to subsequent moves.

Nevertheless, European equities have had a decent start to the year with a 8.4 per cent gain, driven by an improving economic outlook and better-than-feared earnings, even outperforming their US peers.

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Europe: Shares wipe gains on hawkish remarks from ECB officials

Out of the 238 Stoxx 600 companies that have reported fourth-quarter earnings, 59.2 per cent exceeded estimates, according to Refinitiv data. In a typical quarter 53 per cent beat estimates.

Among other major movers, China-exposed luxury giant LVMH fell 1.1 per cent following China’s weak trade data.

Lower metals prices dragged the basic resources index to the bottom of European sector indexes following the data from top metals consumer China data and Powell’s comments.

Germany’s Henkel slipped 2.7 per cent on expectations that slower industrial and consumer demand will curtail sales growth this year.

HelloFresh slumped 10.2 per cent, to the bottom of the Stoxx 600, on lower-than-expected 2023 profit forecast. Norwegian hydrogen company Nel dropped 8.3 per cent after completing a private placement at an about 9 per cent discount.

German food-processing equipment maker GEA Group was among the top Stoxx 600 performers with 3.7 per cent gains following better-than-expected 2022 earnings.

Bank of Ireland rose 2.4 per cent on plans to boost shareholder returns, helping the country’s ISEQ index rise 0.2 per cent. REUTERS