European shares drop as hawkish ECB prepares path for rate hikes

European shares posted their biggest one-day drop in three weeks on Thursday after the European Central Bank announced plans to raise interest rates to fight surging inflation and warned of higher inflation and weaker economic growth.

The pan-European Stoxx 600 closed 1.4 per cent lower, with property and technology shares leading declines.

The ECB committed to a 0.25 percentage point increase in interest rates next month – the first in more than a decade – and pointed to a bigger hike in the autumn, outlining a slightly more aggressive path than economists had foreseen. The policymakers also announced fresh forecasts signalling a faster path for euro zone prices than previously thought, alongside a weaker rebound from the pandemic.

Dublin

The Iseq overall index declined by 0.7 per cent to 7,060.16, though it managed to rally off its lows in late trading.

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Banking stocks were mixed as investors weighed interest income benefits for the sector from rising interest rates against the dampening impact of such action on the economy. Bank of Ireland gained 3.4 per cent to €6.55, while AIB lost 1.5 per cent to €2.49. Permanent TSB advanced 1.4 per cent.

On the bond markets, the market interest rate, or yield, on the Irish government’s 10-year bonds pierced through the 2 per cent level, up from 1.53 per cent two weeks ago and 0.12 per cent at the end of last year.

CRH lost 0.6 per cent to €37.59, while travel stock were also under the cosh, with ferries operator Irish Continental Group dropping 3.6 per cent to €3.75. Ryanair reversed 0.9 per cent to €36.08.

London

THE UK’s FTSE 100 ended the session 1.5 per cent lower, with healthcare and financials leading losses. The midcap FTSE 250 index slipped 1.2 per cent.

“While the ECB did not take any action today, the outcome of today’s meeting had a distinctly hawkish tone,” said Silvia Dall’Angelo, senior economist at Federated Hermes Limited.

Britain’s housing market showed signs of a slowdown last month as fast-rising inflation and higher rates tightened the financial squeeze for many households, a survey showed.

British online electricals retailer AO World fell 2.9 per cent on plans to close its German business.

British American Tobacco’s options for leaving Russia, where it controls almost a quarter of the market, include transferring the business to its local partner, the maker of Pall Mall and Rothmans cigarettes said. Shares were down 2 per cent.

Europe

The euro fell 0.57 per cent to $1.0653 against the dollar as currency markets digested developments at the ECB.

European equities have already been under pressure this year as central banks turned hawkish, stoking fears of a recession. The war in Ukraine, soaring cost pressures and supply chain disruptions are among a multitude of worries for investors.

Among individual stocks Airbus slipped 2.7 per cent after reporting weaker plane deliveries for May. Meanwhile, chip stocks including ASML Holding and Infineon Technologies fell following comments from US peer Intel that a weaker economy will hurt demand and the company’s financial performance in the quarter.

New York

Wall Street’s main stocks indexes were lower in early afternoon trading as growth and bank stocks slipped amid weaker risk appetite ahead of a closely-watched inflation report this week.

Inflation worries came to the fore ahead of the US consumer price index report on Friday as Brent crude prices rose above $123 a barrel.

Alibaba slid after its affiliate Ant Group said it has no plan to initiate an initial public offering.

Tesla rose as the electric automaker sold 32,165 China-made vehicles last month, up sharply from 1,152 in April. Brokerage UBS upgraded the stock to buy and raised its profit estimates for the next three years.

NXP Semiconductors jumped on the Nasdaq on a report that Samsung Electronics plans to acquire the Dutch chipmaker. – Additional reporting: Bloomberg, Reuters