European stocks weaken; ECB, BoE loom after hawkish Fed message

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By Peter Nurse 

AiVIF.com - European stock markets weakened Thursday, as investors fretted about future growth given a hawkish message from the U.S. Federal Reserve and ahead of more central banks meetings in Europe and the U.K.

At 04:10 ET (09:10 GMT), the DAX index in Germany traded 1.1% lower, the FTSE 100 in the U.K. dropped 0.6% and CAC 40 in France traded down 1.2%.

Thursday’s focus will be on policy-setting meetings by the European Central Bank and the Bank of England, not to mention the gatherings at the Norges Bank and the Swiss National Bank.

These central banks are all expected to raise interest rates as they continue to combat inflation running at historically high levels.  

That said, both the BoE and the ECB are set to tone down the size of their hikes to 50 basis points, from 75 bps last time, as European economies as a whole teeter towards recession.

These meetings follow on from the Fed increasing interest rates by 50 basis points on Wednesday, as widely expected, but signaled more increases by the end of 2023.

Additionally, Fed Chair Jerome Powell warned that borrowing costs are likely to peak at higher-than-expected levels, given that inflation is still running well above the central bank’s target range.

Also weighing on sentiment was data showing that Chinese industrial production and retail sales came in well below expectations in November, as rising COVID-19 cases and increased restrictions weighed heavily on the second largest economy in the world, and a major export market for European companies.

In corporate news, H&M (ST:HMb) stock fell 3.5% after the world's second-biggest fashion retailer failed to match the pickup in sales by bigger rival Inditex (BME:ITX), facing pressure from the winding down of its operations in Russia and Belarus and COVID-19 restrictions in China.

British American Tobacco (LON:BATS) stock rose 0.6% after Swiss media reported that the tobacco giant is set to close a cigarette manufacturing plant in Switzerland next year, laying off the 226 employees working there, in a cost-cutting measure.

Currys (LON:CURY) stock slumped 6.6% after the U.K. electronic retailer recorded a hefty pretax loss in the first half of its fiscal year and cut its profit forecasts for the full year, after destocking and a slump in demand hurt its international business. 

Crude oil prices fell Thursday, snapping a three-day rally as the hawkish tone from the Federal Reserve coupled with the weak economic data from China raised fears about demand growth in the coming months.

Also weighing was official data from the Energy Information Administration showing that U.S. crude stocks rose by a hefty 10 million barrels last week, suggesting that near-term consumption in the world’s largest economy remained subdued. 

By 04:10 ET, U.S. crude futures traded 0.9% lower at $76.56 a barrel, while the Brent contract fell 0.7% to $82.09. Both contracts were still trading over 6% higher for the week, after strong gains at the start of the week. 

Additionally, gold futures fell 1.8% to $1,785.45/oz, while EUR/USD traded 0.7% lower at 1.0612.