European Shares Fall as Fed Turns Hawkish on Rates Outlook

(Bloomberg) — European stocks dropped after the Federal Reserve’s hawkish comments signaled fewer interest-rate cuts than anticipated next year. 

The Stoxx Europe 600 Index ended the session down 1.5%, with all sectors in the red. Semiconductor stocks dropped after Micron Technology Inc. posted a disappointing revenue forecast, dragging down European chip equipment makers, including ASML Holding NV and BE Semiconductor Industries NV.

Fed officials delivered an expected quarter-point rate cut but dialed back the outlook for further reductions next year as their 2% inflation target remains elusive. The US shares rebounded slightly on Thursday, suggesting the selloff in the previous session was overdone. 

“The signs that inflation will pick up and it’s not under control serve as a wake-up call that all the underlying problems the market faces may now emerge,” said Ricardo Gil, deputy chief investment officer at Trea Asset Management. “There are only a few sessions left this year, but January is set to be a more chaotic month.”

The Stoxx 600 Europe Index is now around 4% below its September record high, with the end-of-year rally faltering amid economic growth worries and political woes in France and Germany. 

The UK’s FTSE 100 index pared a decline slightly after the Bank of England maintained its main rate at 4.75% and signaled it will keep easing gradually in 2025. The benchmark gauge closed 1.1% lower after falling 1.5% earlier. The UK index has managed to deliver an almost 5% gain this year, though it continues to lag behind both the Euro Stoxx 50 and the S&P 500.

Sweden’s Riksbank lowered its benchmark interest rate by a quarter point, signaling its easing is nearing end. Meanwhile, Norway’s Norges Bank left its deposit rate unchanged.

Among individual movers, Roche Holding AG dropped after the pharma producer said its experimental Parkinson’s disease drug failed in a clinical trial. Zurich Insurance Group and Munich Re fell after analysts at UBS Group AG cut their recommendation on the stocks. Telecom Italia SpA shares fell, with a recent selloff in the Brazilian real hitting the firm that operates in the country.

For more on equity markets: 

• Income Appeal Means the UK Has a Shot in 2025: Taking Stock
• M&A Watch Europe: SoftwareOne to Buy Crayon; Rio Tinto Listing
• Mideast IPOs Face Valuation Test After Bumper Year: ECM Watch
• US Stock Futures Rise; Lennox, Amazon Gain
• Inflation Rise Turns Heads to Bailey: The London Rush

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–With assistance from Michael Msika and Kit Rees.

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