European Stocks Drop Most in Month With Cyclicals on Hawkish Fed

European shares fell the most in a month as more hawkish messaging from U.S. Federal Reserve officials fueled a retreat out of more cyclical segments of the market.

The Stoxx Europe 600 Index closed down 1.6%, with energy, banks and miners leading the retreat. Britain’s FTSE 100 benchmark was down -1.9% as a surge in coronavirus cases dented mounting confidence in the U.K.’s recovery.

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European equities are ending the week on a more sober note after closing at nine consecutive record highs, the longest run since 1999. The streak ended on Thursday as investors assessed the Fed’s timetable for rate liftoff. European stocks extended declines today as yields on shorter-maturity Treasuries jumped after St. Louis Fed President James Bullard said on CNBC that the central bank has started discussing scaling back the pace of pandemic bond-buying.

European Stocks Drop Most in Month With Cyclicals on Hawkish Fed

“It is now clear to most investors that we are slowly entering a new market phase with this change in monetary policy sparked by rising inflation,” said Pierre Veyret, technical analyst at ActivTrades.

The Stoxx 600 index has jumped 13% in 2021, outperforming the U.S. stock market, and strategists on average see European stocks ending the year slightly below current levels, according to a Bloomberg survey.

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Market players on Friday were also braced for volatility spurred by the expiry of options, futures and indexes in an event known as ‘triple witching.’

Meanwhile, European stock funds attracted inflows of $3.3 billion in the week through June 16, the biggest since February 2018, according to Bank of America Corp. and EPFR Global data.

Among individual companies, Tesco Plc dropped 4.1% as sales growth slowed in the latest quarter. Tod’s SpA jumped 13% following bullish comments by UBS Group AG analysts on the luxury sector after a conference hosting the Italian shoemaker.

HSBC Holdings Plc dropped 2.3% as the transfer of its unprofitable French retail operation to Cerberus is set to cost the bank as much as $3 billion.

Miners were also among underperformers as copper headed for its worst week since the start of the pandemic on the Fed’s hawkish turn and as fresh interventions to cool Chinese commodities markets dealt dual blows to the outlook for demand.

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