European Stocks Tumble Amid Fed's Rate Signals

By Sruthi Shankar

European stocks fell significantly on Thursday, with the pan-European STOXX 600 index down 1% as investors moved away from riskier assets, reacting to signals from the U.S. Federal Reserve regarding slower interest rate cuts next year.

U.S. stocks experienced a considerable decline on Wednesday, marking their largest drop in months. Although the Fed made anticipated rate cuts, Chair Jerome Powell suggested that further reductions depend on progress in managing high inflation.

Futures indicated a slight rebound for U.S. stocks on Thursday. According to Matt Britzman, a senior equity analyst at Hargreaves Lansdown, Wall Street's response reflects the Fed's challenging task of managing market expectations for easing monetary policy.

Market analysts view the corrections as a necessary profit-taking phase rather than a downturn, given the robust market performance post-U.S. elections. In reaction to the Fed's announcement, U.S. and European government bond yields rose, while oil and metal prices declined against a strengthening dollar.

Rate-sensitive technology stocks in Europe faced intense selling, with a 1.9% drop after significant losses among major tech companies in the U.S. Chip manufacturers like ASML, Infineon Technologies, and STMicroelectronics saw stock prices decrease between 3.0% and 3.6%.

A volatility index for euro zone stocks reached its highest point in two weeks. The UK's FTSE 100 index fell by 0.9%, caught in the broader market decline as traders awaited the Bank of England's rate decision. Most analysts expected the British central bank to maintain the interest rate at 4.75%, while anticipating a gradual approach to cutting rates due to persistent inflation.

Unicredit analysts forecasted a cautious strategy from the Monetary Policy Committee, expecting one 25 basis points cut per quarter. They predict the need for faster rate cuts in 2025 as labor market deterioration becomes evident.

In positive news, SoftwareOne Holding's shares surged 8.7% after announcing a deal to acquire Crayon Group, valuing the Norwegian competitor at about $1.34 billion, while Crayon's shares dropped 6.5%.