European shares fell on Thursday as investors digested mixed signals from the US Federal Reserve on its interest rate path while awaiting the European Central Bank’s rate decision later in the day.
The pan-European STOXX 600 index dropped 0.8 percent, with automobile shares leading the losses, falling 2.3 percent.
The oil and gas index was the sole gainer, rising 1.3 percent.
The Fed raised its key benchmark rate by 25 basis points to the 5 percent-5.25 percent range as expected but dropped from its statement that it “anticipates” further hikes would be needed.
However, Fed Chair Jerome Powell later said it was too soon to say the rate hike cycle is over.
All eyes will now be on the ECB’s rate decision, due at 12:15 p.m. GMT, at which the central bank is expected to deliver another quarter percentage point rate hike, but a bigger hike is not ruled out either, as the bloc grapples with sticky inflation.
London’s FTSE 100 also fell, with losses from miners dragging the commodity-heavy index down, while broader market sentiment was also downbeat after Federal chair Jerome Powell said inflation was still a concern.
The blue-chip index and the mid-cap FTSE 250 index shed 0.5 percent each as of 7:18 a.m. GMT.
Base metal miners fell 1.8 percent, even as metal prices rose, as a weaker-than-expected demand recovery in top consumer China prevented dented sentiment.
Oil and gas stocks, however, rose 1.5 percent, led by a 2.2 percent rise in Shell as the oil giant posted a first quarter net profit of $9.65 billion, topping analysts’ forecasts.
All major Asian currencies strengthened and regional bonds rallied on Thursday after the Fed’s announcement, with South Korea’s won and Indonesia’s rupiah leading gains.
The rupiah appreciated as much as 0.8 percent to 14,570 per US dollar, hitting its highest level since June 10, 2022.
Commodities also felt the impact of the change in tone from the Fed.
Gold took a breather on Thursday after surging to a near all-time high after the signal of a pause in the rate tightening cycle, with analysts predicting further gains for the safe-haven asset as economic risks persist.
Spot gold was steady at $2,038.19 per ounce as of 7:04 a.m. GMT, after earlier jumping to $2,072.19, just shy of a record high of $2,072.49 in 2020, with analysts attributing the slight pullback to profit-taking.
US gold futures rose 0.5 percent to $2,047.70.
“With the Fed meeting out of the way, the focus will remain on any contagion risks from the US banking sector … that’ll put a cautious stance in the risk environment, drawing continued safe-haven flows for gold in the event of further fallouts,” said Yeap Jun Rong, market analyst at IG.
Most base metals prices rose on Thursday as a weaker dollar made greenback-priced metals less expensive to holders of other currencies, but a weaker-than-expected demand recovery in top consumer China prevented a stronger rally.