Wednesday 21 August 2019

European shares slide on rate fears

European shares fell for the fourth straight session yesterday, as bets on an aggressive half-point cut in US interest rates next month collapsed following a more measured than expected message from Federal Reserve officials. Stock photo
European shares fell for the fourth straight session yesterday, as bets on an aggressive half-point cut in US interest rates next month collapsed following a more measured than expected message from Federal Reserve officials. Stock photo

European shares fell for the fourth straight session yesterday, as bets on an aggressive half-point cut in US interest rates next month collapsed following a more measured than expected message from Federal Reserve officials.

Fed Chair Jerome Powell said on Tuesday that the central bank is "insulated from short-term political pressures", pushing back on pressure from President Donald Trump to cut interest rates and saying a cut next month is not locked in.

Markets still firmly expect the US central bank to ease policy but comments from Powell and others were enough to weaken bets on the decisive new support for growth that has driven stock markets 4pc higher this month.

The pan-European STOXX 600 index fell 0.3pc near the open and was 0.18pc lower near the close.

Banking stocks, which unlike consumers, retailers or manufacturers tend to benefit from higher interest rates, outperformed.

"There is a lot of digesting of Fed commentary from last night. Both Powell and (St Louis Fed chief James) Bullard poured cold water over expectations for a more than 25 bps rate cut in July," said Mark Taylor, sales trader at Mirabaud Securities in London.

"If you look at expectations for the full year we're still at around three rate cuts, so the longer picture is unchanged, it's the dialling back of some of the expectations which is partly behind the reason for the rotations we're seeing."

European markets saw their biggest sell-off in more than two years in May, hit by a cocktail of concerns over trade tensions, the global economic cycle and Brexit, and traders say the mood is still shaky.

The next big set piece is this weekend's G20 summit, starting tomorrow.

In Ireland, the Iseq Overall Index was 0.2pc higher near the close, at 6,121.

AIB was up 2.5pc soon before the bell, at €3.53, while Bank of Ireland was trading 1.4pc lower, at €4.48.

Applegreen was virtually unchanged at €5.30 after it announced a deal to lease more sites in the United States, marking the first move for the forecourt retailer into the mid-west.

The UK'S FTSE-100 was flat, Germany's DAX was up 0.1pc near the close, while France's CAC-40 was down 0.15pc.

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