European shares slide as Fed hints at tightening for longer

European shares fell on Thursday, led by technology shares, after the Federal Reserve hinted at smaller interest rate increases for longer, dampening hopes of a downshift in its aggressive fight against inflation.

The pan-European STOXX 600 dropped 0.9 percent by 0905 GMT, with rate-sensitive European technology stocks falling nearly 2 percent .

While most major European sector indexes slid, banks edged 0.3 percent higher.

The Fed delivered its fourth straight 75 basis point rate hike on Wednesday, with Chair Jerome Powell flagging that future hikes may come in smaller increments, and said the “ultimate level” of the benchmark policy rate would likely be higher than previously estimated.

“The Fed gives with one hand and takes with the other. The acknowledgment that future decisions will take into account cumulative tightening and policy lags was a strong nod to slowing the pace of tightening in December,” said Craig Erlam, senior market analyst of UK & EMEA at OANDA.

“But what investors didn’t want was the claim that rates could go higher than they previously thought and rates still have some way to go.”

European equity markets rose for three days out of four leading up to the Fed decision, helped by better-than-expected corporate earnings. However, economic data since has provided further evidence that the euro zone was gradually slipping into a recession.

As euro zone inflation notches fresh record highs, the European Central Bank has taken similar hawkish cues from its counterpart across the Atlantic in sticking to its rapid rate hiking cycle as its deposit rate is seen peaking at just below 2.9 percent  in 2023.

European travel & leisure stocks slipped 1.9 percent , with Flutter Entertainment’s 4.4 percent fall leading the declines after Australia’s financial crime watchdog ordered an audit of Sportsbet, the country’s largest online betting house operated by Flutter.

This also weighed down Irish stocks by 1.3 percent .

Investors awaited an interest rate decision by the Bank of England later in the day, where it is expected to deliver its biggest rate hike since 1989.

Among stocks, BMW fell 2.9  percent as the German premium carmaker warned that rising inflation and interest rates would start to weigh on sales in the coming months.

Soon-to-be-nationalised gas importer Uniper dropped 0.8 percent after a record 40 billion euro ($39.3 billion) net loss, while BNP Paribas, the euro zone’s biggest lender, added 2.7 percent as it posted a higher-than-expected net quarterly profit.