Europe close: Vstoxx surges, bonds gyrate after MPC surprise
Stocks finished at their lows of the session amid steep selling in government bonds around the world stoked by a hawkish sounding Monetary Policy Committee, amid a noticeable pick-up in a key gauge of stockmarket volatility on the Continent.
Commenting on the content of Governor Mark Carney's press conference earlier, Andrew Goodwin, lead UK economist at Oxford Economics, said: "It is clear that, absent a downside shock, the MPC is now set on a path of steady policy normalisation to the extent that, even though we expect inflation to slow more markedly than the Bank expects this year, we now think that the Committee will hike again in November."
Against that backdrop, by the closing bell the benchmark Stoxx 600 had shed 1.60% or 6.10 points to 374.03, alongside a fall of 2.62% or 330.14 points for the German Dax to 12,260.29 and a 2.26% or 519.58 drop on the FTSE Mibtel to 22,466.60.
Volatility on the Euro Stoxx 50 was notably higher, with the VStoxx gauge rocketing 50.24% to 32.10.
In parallel, the yield on the 10-year German bund was two basis points higher to 0.76%, well off the session's high water mark of 0.81%.
Tracking movements in Bund yields, euro/dollar reversed course, drifting down 0.16% to 1.2238.
Stateside, yields on 10-year Treasuries had turned lower, following earlier gains.
To take note of, overnight US Senate leaders reached agreement on a two-year bipartisan spending bill, with the House of Representatives due to vote on it on Thursday.
However, after the close of trading in Frankfurt some reported were indicating that it might have hit a snag.
Elsewhere on the economic front, and central bank speakers aside, Spain's industrial production jumped by 0.9% on the month in December (consensus: -0.2%), INE said.
Meanwhile, in Germany, the Ministry of Finance reported a drop in the country's seasonally adjusted trade surplus from €22.3bn in November to €21.5bn for December (consensus: €22.3bn) as imports jumped by 1.4% versus the month before.
On the corporate side of things, Denmark's TDC was catapulted aloft by news of an unsolicited takeover bid from three pension funds and Macquarie.
Elsewhere, Brazilian competition authorities gave Bayer the 'all clear' to proceed with the acquisition of US rival Monsanto.
Germany's Commerzbank said it was aiming to return to a dividend payout in the current year and posted modestly better-than-expected fourth quarter revenues of €2.19bn, yet the shares went down in a bout of late selling.
Stronger-than-expected earnings were behind a rise in Pernod Ricard shares after the spirits-maker reported stronger demand from China and India as well as at its travel retail division.
Going the other way, Airbus stock was still moving lower after disclosing it may incur in additional write-offs linked to its trouble-prone A400M military cargo aircraft.