European equities mostly drop on Fed rate jitters

Europe’s major stock markets mostly fell Friday as investors dwelled on the prospect of rising US interest rates, while London was dented also by weak UK data.

Frankfurt stocks slid 0.4 percent but Paris clawed back earlier losses to hold steady in early afternoon eurozone trade.

“Investors took time to digest the Federal Reserve’s shock earlier this week that US interest rates might go up sooner than previously expected,” noted Russ Mould, investment director at stockbroker AJ Bell.

London stocks sank one percent at midday, as official data showed UK retail sales slid in May.

Sentiment was hit also by industry data showing that UK food and drink exports to the European Union almost halved in the first quarter as a result of Brexit and pandemic fallout.

Britain’s Food and Drink Federation said EU sales slumped 47 percent from a year earlier, after Britain left the bloc at the start of 2021.

Elsewhere on Friday, Asian stocks diverged as dealers contemplated the US monetary policy outlook.

After Wednesday’s Fed meeting, officials’ “dot plot” forecast for rates showed they were now more likely to lift in 2023 — a year earlier than first suggested — soothing worries about runaway prices, for now. Some policymakers projected lift-off as soon as 2022.

Markets mostly took the prospect of a hike largely in their stride, and Wall Street ended Thursday on a mixed note.

With the post-pandemic recovery well under way in most countries as vaccination campaigns roll out and containment measures are eased, the general mood across trading floors is positive and observers are predicting equities will continue the rally that started in April 2020.

The blockbuster growth enjoyed this year has been tempered by worries that a surge in buying spurred by pent-up demand for goods would combine with supply constraints and bottlenecks to send prices rocketing.

That, in turn, has raised concerns central banks may have to tighten their ultra-loose monetary policies earlier than previously flagged.

– Dollar hits commodities –

The prospect of higher rates sent the greenback rallying this week and it largely maintained its strength Friday.

But that, in turn, has weighed upon dollar-priced commodities, with oil taking a hit over the past two days while metals have tumbled from recent highs.

“There can be no doubt that the froth has well and truly been blown off many commodity markets,” said National Australia Bank’s Ray Attrill.

Gold, a key go-to asset in times of high inflation, touched a three-month low on Thursday before trimming losses on Friday.

– Key figures at 1100 GMT –

London – FTSE 100: DOWN 1.0 percent at 7,078.28 points

Frankfurt – DAX 30: DOWN 0.4 percent at 15,669.61

Paris – CAC 40: FLAT at 6,672.49

EURO STOXX 50: FLAT at 4,157.02

Tokyo – Nikkei 225: DOWN 0.2 percent at 28,964.08 (close)

Hong Kong – Hang Seng Index: UP 0.9 percent at 28,801.27 (close)

Shanghai – Composite: FLAT at 3,525.10 (close)

New York – Dow: DOWN 0.6 percent at 33,823.45 (close)

Euro/dollar: UP at $1.1919 from $1.1907 at 2100 GMT

Pound/dollar: DOWN at $1.3893 from $1.3922

Euro/pound: UP at 85.76 pence from 85.53 pence

Dollar/yen: DOWN at 110.12 yen from 110.21 yen

Brent North Sea crude: DOWN 0.5 percent at $72.69 per barrel

West Texas Intermediate: DOWN 0.3 percent at $71.82 per barrel

dan-rfj/bcp/rl