European stocks retreat in face of Fed rate hike

European stocks retreat in face of Fed rate hike, Source: AFP/File | Ben Stansall

Wall Street stocks, which had tumbled on Wednesday after the Fed defied unprecedented pressure from President Donald Trump to raise rates, slid further on Thursday.

In Japan, the Nikkei plunged to a 15-month low after the Dow struck its lowest level of 2018 on Wednesday.

Oil prices meanwhile dived to fresh 15-month lows, prolonging volatility that has gripped the crude market in recent weeks.

In Europe, London's benchmark FTSE 100 index slid 0.8 per cent, with losses capped by stronger-than-expected UK retail sales data.

In the eurozone, Frankfurt's DAX 30 shed 1.4 per cent and the Paris CAC 40 slumped 1.8 per cent. Both are near lows for the year.

The euro, meanwhile, hit a six-week high at US$1.1486.

On the corporate front, shares in Airbus plunged nearly 10 per cent after French daily newspaper Le Monde said the European aircraft manufacturer could face fines of several billion dollars under a US corruption probe, before recovering somewhat to end the day down 4.4 per cent.

ALL ABOUT THE FED

The Federal Reserve on Wednesday raised US interest rates for the fourth time this year - as expected. But markets reacted badly after chairman Jerome Powell said the bank would not shift course on reducing its balance sheet.

Investors had hoped for a less aggressive approach amid concern that global growth is slowing, while Powell played down the impact of recent market turmoil on the US economy.

"Traders are worried the US central will press ahead with monetary tightening plans against a softer economic backdrop," said market analyst David Madden at CMC Markets UK.

Markets "think the Fed has completely misjudged the situation and now it's just a matter of ... trying to find an exit while you can", said Kyle Rodda, analyst at IG Group in Melbourne.

"We're probably entering a stage now where markets have got it (in) their head that we're preparing for quite sustained downside going into 2019."

The Fed now predicts two interest rate increases next year, down from three, as it trimmed its forecast for US growth and inflation.

"The market overreacted to the Fed, I think," said Shane Oliver, head of investment strategy at AMP Capital Investors.

"It is moving in a dovish direction and is on track for a pause in the first half of next year. Markets are being driven by fear rather than fundamentals."

But the spillover from the rate hike continued to rattle investors, deepening concern over global growth prospects which are already facing headwinds from Trump's trade war with Beijing, a slowing Chinese economy, and potential turmoil from Britain quitting the European Union.

Japanese stocks declined also after the Bank of Japan left ultra-low rates unchanged, with the threat of trade protectionism and slowing global growth casting a pall over the export-driven economy.

A strong yen also put downward pressure on stocks, with the dollar falling below 112 yen.

Oil prices meanwhile tumbled, with Brent striking US$54.64 per barrel, the lowest level since September 2017.

Crude reversed strong gains won a day earlier on concerns about growth and oversupplies of US oil, and tracking equity losses.

A smaller than expected fall in US crude stockpiles added to supply glut fears triggered earlier this week by forecasts of increasing shale oil production.

Key figures around 1530 GMT:

London - FTSE 100: DOWN 0.8 per cent at 6,711.93 points (close)

Frankfurt - DAX 30: DOWN 1.4 per cent at 10,611.10 (close)

Paris - CAC 40: DOWN 1.8 per cent at 4,692.46 (close)

EURO STOXX 50: DOWN 1.7 per cent at 3,000.81

New York - Dow: DOWN 1.0 per cent at 23,081.79

Tokyo - Nikkei 225: DOWN 2.8 per cent at 20,392.58 (close)

Hong Kong - Hang Seng: DOWN 0.9 per cent at 25,623.53 (close)

Shanghai - Composite: DOWN 0.5 per cent at 2,536.27 (close)

Euro/dollar: UP at US$1.1461 from US$1.1377 at 2200 GMT

Dollar/yen: DOWN at 111.62 yen from 112.43 yen

Pound/dollar: UP at US$1.2641 from US$1.2616

Oil - Brent Crude: DOWN US$1.87 at US$55.37 per barrel

Oil - West Texas Intermediate: DOWN US$1.78 at US$46.39 per barrel