LONDON: European stock markets fell Wednesday as an upbeat assessment of the US economy by Federal Reserve boss Jerome Powell fanned fears of a sharp rise in interest rates.
In late morning deals, Frankfurt slipped 0.3 percent and Paris shed 0.4 percent, while London dipped 0.2 percent.
Shares in British broadcaster ITV slumped six percent, topping the London FTSE 100 fallers’ board, after the company posted declining advertising revenues, in the first results under new chief executive Carolyn McCall, the former boss of low-cost airline EasyJet.
Sentiment was jolted also by news that around 6,000 jobs could be lost following the collapse both of the UK arm of Toys’R’Us and British electrical retailer Maplin.
Powell, making his debut before US lawmakers, said the outlook had improved since December when President Donald Trump pushed through massive across-the-board tax cuts.
“Powell’s unequivocal optimism over the outlook for the US economy and his hawkishness have led investors to believe that the Fed could take a more aggressive approach to monetary policy,” said City Index analyst Fiona Cincotta.
While it was a positive sign for the world’s top economy, the appraisal spooked investors already on edge at the prospect of higher borrowing costs. They forecast four rate rises this year rather than the three previously expected.
The European single currency meanwhile held steady amid news that eurozone inflation slowed to 1.2 percent in February.
That could make it less likely that the European Central Bank will turn off its massive stimulus programme in the near future.
“Lower than expected inflation in February suggests we will see quite a bit of monetary policy divergence between the US and eurozone this year,” noted Jacob Deppe, Head of Trading at online trading platform Infinox.
“ECB president Mario Draghi has maintained a very dovish stance on interest rates and … there remains little pressure to change course.
“That is in stark contrast to the US, where Fed chairman Jerome Powell indicated on Tuesday there could be more than the currently expected three interest rate hikes this year in order to prevent (inflation) running too hot.”
The Fed boss’s comments sent all three main Wall Street indexes plunging more than one percent on Tuesday.
World markets suffered a sharp drop at the start of February after strong jobs and wages data sparked concerns that inflation would surge, and in turn force the Fed to ramp up borrowing costs.
– Poor Chinese data –
Markets also took a hit on Wednesday from news of the third successive monthly fall in China’s purchasing managers’ index (PMI) survey of factory activity.
Asian equity markets sank as global investor sentiment was weighed down by the reading of Chinese factory activity coming in at a 19-month low in February.
The news weighed heavily on London’s energy and mining sectors because the Asian powerhouse economy is a top consumer of many raw materials.
Source: Brecorder.com
