Europe midday: Powell's hawkish comments spark sell-off

(Sharecast News) - European stocks declined by over 1% on Friday hawkish comments from the chair of the Federal Reserve spooked investors who have convinced themselves that more rate hikes are off the table. Europe's Stoxx 600 index was down 1.1% at 442.95 - its steepest one-day decline since 19 October - with markets across the continent in the red.

Expectations have risen in recent weeks that central banks across Europe, the UK and US were done with monetary tightening for now, as inflation begins to ease and economic data weakens.

But Fed chair Jerome Powell said that further rate hikes would be necessary to sustainably bring inflation down to the 2% target. "If it becomes appropriate to tighten policy further, we will not hesitate to do so," he said.

"Yesterday's appearance from Federal Reserve chairman Powell helped bring the equity market resurgence to a grinding halt, with his apparent hawkish tone sending the 10-year yields higher and equities lower," said Joshua Mahony, chief market analyst at Scope Markets.

"With markets having been remarkably jittery in the wake of Powell's appearance, the market confidence seen of late clearly stands on relatively unstable presumptions. Nonetheless, the 'data dependent' theme that forms the basis of this less hawkish shift remains the key element to consider. With inflation expected to continue its downwards trajectory and economic strength coming into question, there is a strong chance that we see rates remain steady from here on in."

Economic news this side of the Atlantic was on the quiet side with UK GDP the only major release of the morning. The Office for National Statistics showed that UK GDP was unchanged in the three months to September, versus consensus expectations for a 0.1% contraction. For the month of September, GDP rose 0.2% on the month following 0.1% growth in August, which was revised down from 0.2%. Economists were expecting no growth.

Diageo drags drink stocks lower

UK-listed drinks giant Diageo saw shares plummet 15% after saying it expects to see a slowdown in growth in the first half due to a weaker performance in Latin America and the Caribbean.

Latin America and the Caribbean, one of its five key regions which accounts for 11% of group net sales values, is now expected to see an organic net sales decline of more than 20% in the second half compared with last year.

European drinks peers AB Inbev, Heineken, Carlsberg, Pernod Ricard, Royal Unibrew and Campari Group were all trading lower.

Shares in Richemont fell in Zurich, after the luxury group posted first-half profits below expectations and flagged weaker customer sentiment. The Swiss group, which owns Cartier, Van Cleef & Arpels, Chloe and IWC, among others, reported a 6% increase in sales in the six months to September end, to €10.2bn. Analysts had forecast interim sales of €10.34bn.

Housebuilder stocks were providing a further drag in London after Redrow warned that profits would be at the lower end of expectations due to weaker market conditions. Berkeley, Barratt Developments and Taylor Wimpey were all firmly lower.