Europe’s STOXX 600 clocks worst day in more than a month after Fed’s hawkish signal

By Sruthi Shankar and Shashwat Chauhan

(Reuters) -European stocks fell on Thursday, with the benchmark STOXX recording its biggest single-day drop since early November as investors fled riskier assets after the U.S. Federal Reserve signalled a slower pace of interest rate cuts next year.

The pan-European STOXX 600 index closed 1.5% lower, hitting a three-week low, with all the major sub-sectors in the red.

Global equities ran into turbulence after the Fed cut rates as expected on Wednesday, but Chair Jerome Powell said more reductions in borrowing costs now hinged on further progress in lowering stubbornly high inflation.

“The Fed now expects inflation to get to target later, in 2026, and that current policy rates are significantly closer to neutral,” said Mahmood Pradhan, head of global macro economics at Amundi Investment Institute.

“Confirming rates higher for longer – (Fed) median raised to 3.9% from 3.4% – led to a significant market reaction, a much stronger dollar, a sharp increase in Treasury yields and equity indices markedly lower.”

On Thursday, Wall Street staged a minor rebound after U.S. stocks posted their biggest daily decline in months in the last session. [.N]

Rate-sensitive real-estate was amongst the top decliners, down 2.4%, while the tech index also dropped 2.4% after megacap giants suffered big losses overnight on Wall Street.

Chip stocks including ASML, Infineon Technologies and STMicroelectronics fell between 3.7% and 6.2%, also hurt by U.S. firm Micron Technology’s bleak quarterly forecast.

A volatility gauge for euro zone stocks jumped to its highest in over three weeks.

Meanwhile, the Bank of England kept its benchmark Bank Rate on hold at 4.75%, as expected, though were policymakers split over whether to cut interest rates, with more officials than expected seeking to help the slowing economy with lower borrowing costs.

“The surprise element is there are three (committee) members voting for a rate cut. So on balance it’s less hawkish than markets were broadly expecting,” said Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin.

The UK’s blue-chip FTSE 100 dropped 1.1%, swept up in a broader market selloff. [.L]

Sweden’s central bank cut its key interest rate by a quarter of a percentage point, as expected, while Norway’s central bank held its policy interest rate unchanged at a 16-year high of 4.50%.

Among individual movers, SoftwareOne Holding jumped 7% after the Swiss technology firm announced a deal to buy Crayon Group that valued its Norwegian competitor at around $1.34 billion. Crayon’s shares fell 4.1%.

(Reporting by Sruthi Shankar and Shashwat Chauhan in Bengaluru; Editing by Sonia Cheema, Shounak Dasgupta and Alex Richardson)