(Bloomberg) – European stocks fell as investors probed a string of gains for clues about the state of the economy and braced for a European Central Bank interest rate decision later on Thursday following the Federal Reserve’s latest quarter-point hike. The dollar extended a decline.
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Energy stocks were the only European sector to post gains, with Shell Plc gaining after it maintained the pace of share buybacks and reported another strong quarterly profit despite lower oil and gas prices.
Contracts for the S&P 500 slipped and those for the Nasdaq 100 held steady after falling on Wall Street on Wednesday as turmoil at US regional banks added to market volatility. An Asia-wide equity indicator was on course for its best day in about three weeks, helped by gains in Hong Kong stocks. Stocks in mainland China faltered as they resumed trading after a three-day hiatus.
The moves followed a 25 basis point hike by the Fed and comments from Chair Jerome Powell that opened the door for a pause in June but downplayed the prospect of rate cuts later in the year – a scenario firmly reflected in market prices.
The Bloomberg dollar index fell for a third day, while the yen continued a rally against most of its Group of 10 peers. US Treasury bonds fell, shedding part of the rally that followed Wednesday’s Fed comment, and US stocks slipped on banking industry concerns.
Oil recovered quickly after a sudden slump in trading early Thursday. The move helped retrace some of the losses it suffered this week as worries about global growth weighed on the commodity.
US regional lender PacWest Bancorp said it was in talks with several potential investors to reassure markets after shares plummeted on news it was exploring options including a sale. The sudden fall renewed concerns about the health of the US banking system and weighed on other countries’ regional lenders.
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“The tightening of credit conditions will put significant pressure on the economy,” Michelle Girard, US head of NatWest Markets, told Bloomberg Television. “You will see the Fed’s ability to move policy to a less hawkish stance sooner than the Fed chair suggested today.”
The rate debate will resume later on Thursday with the ECB taking center stage. Policymakers are observed to hike the deposit rate by a quarter point to 3.25%, which would mean a slowdown in their rate hike cycle. The decision is expected at 2:15 p.m. in Frankfurt, half an hour later President Christine Lagarde will speak at a press conference.
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“Potential Fed pause but no Fed pivot yet,” Glenmede’s Jason Pride said. “The Fed is telegraphing that further monetary tightening may or may not happen, but rate cuts don’t appear to be on the table just yet. Fed leaders are working hard to thread the needle between telegraphing too much tightening and disagreeing with the market’s rate cut narrative.”
Important events this week:
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US Initial Jobless Claims, Trade Balance, Thursday
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European Central Bank interest rate decision followed by ECB President Christine Lagarde’s press conference on Thursday
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US Unemployment, Nonfarm Payrolls, Friday
Some of the key movements in the markets:
Shares
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The Stoxx Europe 600 was down 0.8% at 8:29 am London time
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S&P 500 futures fell 0.2%
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Nasdaq 100 futures were little changed
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Futures on the Dow Jones Industrial Average fell 0.2%
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MSCI Asia Pacific Index up 0.5%
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MSCI Emerging Markets Index up 0.6%
currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro was little changed at $1.1067
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The Japanese yen was little changed at 134.70 per dollar
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The offshore yuan was little changed at 6.9186 per dollar
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The British pound was little changed at $1.2567
cryptocurrencies
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Bitcoin surged 2% to $29,094.23
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Ether is up 1.3% to $1,898.89
Bind
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The 10-year government bond yield rose three basis points to 3.37%
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The 10-year German government bond yield rose two basis points to 2.27%
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The 10-year UK government bond yield was little changed at 3.70%.
raw materials
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Brent crude rose 1% to $73.07 a barrel
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Spot gold fell 0.2% to $2,034.91 an ounce
This story was created with the support of Bloomberg Automation.
–Assisted by Stephen Kirkland.
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