Europe midday: Shares lower on hawkish Fed with eyes on Powell speech
European shares were lower on Tuesday after a mixed Wall Street session where hawkish comments from two Federal Reserve policymakers hit sentiment.
The pan-European Stoxx 600 index was down 0.67% at 1145 GMT with all major regional bourses lower.
In the US overnight, the presidents of the Feds Atlanta and San Francisco branches said they expected the policy rate to go beyond 5% in order to slow inflation, hitting investor hopes that a less restrictive policy may be on the way.
Economists are expecting a hike of 0.25% at the Fed’s February meeting.
Optimism that rate hikes could be eased were boosted last Friday by data showing average hourly earnings rose 4.6% year on year in December, compared with 4.8 per cent the previous month.
The US economy added 223,000 jobs in December, more than economists had expected but smaller than the 256,000 increase in November.
“Although driving in the rear view mirror has limited appeal, the onset of the reporting season in the US this week will add further colour to the performance of the economy on the ground,” said Interactive Investor head of markets Richard Hunter.
“With the banks kicking off the season in earnest, there will inevitably be focus on any worsening of demand, particularly in the housing sector, alongside any increase in bad debts as the consumer comes under additional economic pressure.”
Fed chief Jerome Powell is speaking later in the day, with investors looking for any further clues on the pace of future rate hikes.
In the UK, retail sales over Christmas continued to defy predictions, with December showing a 6.5% rise year on year, according to data from the British Retail Consortium and KPMG, although this was largely driven by the higher price of products rather than volume.
“The numbers for sales growth in December look healthy,” said Paul Martin, UK head of retail at KPMG. “This is largely due to goods costing more and masks the fact that the volume of goods that people are buying is significantly down on this time last year.”
In equity news, shares in Games Workshop fell as interim pre-tax profits fell 5.2 per cent to £83.6m on lower licensing earnings and despite a rise in sales.
ITV slumped after Morgan Stanley cut its price target on shares of the UK broadcaster.
IT infrastructure and services provider Softcat was under the cosh on Tuesday after UBS downgraded the shares to ‘sell’ from ‘neutral’ and cut the price target to 1,070p from 1,220p.
UBS said the UK's weaker economic outlook within Europe and its high SME exposure present enhanced insolvency risks and while the shares fell 34% in 2022 the European reseller peer group fell 37% in GBP terms, so it has not underperformed.
Recruiters PageGroup, Adecco and Hays slumped after a profit warning from Robert Walters.
Reporting by Frank Prenesti for Sharecast.com