European shares fall as US rate cut expectations wane

FRANKFURT: European shares fell on Friday, as hawkish commentary from US policymakers dampened expectations of an imminent interest rate cut, even as the benchmark STOXX 600 index registered its strongest weekly performance since late September.

The pan-European STO-XX 600 ended down 1 percent to 574.81 points, with banks down 2.4 percent.

Macro developments in the US have been in the spotlight this week and investors were hopeful that the resumption of data releases would point to a weaker economy and give the Federal Reserve reason to lower borrowing costs in December.

However, those expectations were pared after a growing number of Fed policymakers signalled caution on further easing.

Additionally, technology stocks came under renewed selling pressure.

“If indeed (US markets are) in bubble territory and the fact that the Fed won’t ease, it will be bad for equities and would definitely have a spillover effect into European markets. The tech sector within Europe is very small, but it could have a ripple effect,” said Anthi Tsouvali, multi asset strategist at UBS Global Wealth Management.

“A lot of times, it’s about sentiment. So when sentiment goes down, unfortunately, it impacts a lot of markets.”

Expectations of a rate cut coupled with the end of the longest-ever US government shutdown had lifted the STOXX index to hit record highs numerous times this week.

European tech stocks fell 1.4 percent. It had hit a seven-week low earlier in the session.

Bucking the day’s trend, luxury group Richemont gained 5.9 percent and lifted the broader luxury sector after reporting quarterly sales well ahead of forecasts.Siemens Energy jumped 9.4 percent after the German company announced plans to pay its first dividend in four years and raised its mid-term outlook.

Meanwhile, the UK’s FTSE 100 lost 1.1 percent, pressured by a spike in gilt yields after a report said Finance Minister Rachel Reeves scrapped plans to raise income tax rates in the upcoming budget, raising questions on plans for balancing public finances.

Meanwhile, data showed the euro zone economy continued to expand at a modest but respectable pace in the third quarter while the trade surplus surged in September on healthy exports to the US.