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European stocks fell Friday, with banks and energy companies leading declines, as investors continued to absorb a hawkish turn by the Federal Reserve.
The Stoxx Europe 600 index
SXXP,
down 0.3% so far this week, went from modest losses to a 0.8% drop on Friday, with the German DAX
DAX,
down 0.9%, the French CAC 40
PX1,
off 0.6% and the FTSE 100
UKX,
down 1.1%. The euro
EURUSD,
was also going nowhere, but the British pound
GBPUSD,
dropped 0.4% to $1.3869 after disappointing U.K. retail sales data.
U.S. equity futures
ES00,
NQ00,
indicated a weaker start for Wall Street. On Thursday, the Dow Jones Industrial Average
DJIA,
dropped and the Nasdaq Composite
COMP,
gained as investors switched out of reflation trades in favor of technology names.
The Fed was viewed as taking a slightly hawkish turn on Wednesday after its summary of economic projections showed two interest rate increases in 2023, and its admission that it has begun talking about when to slow the rate of bond purchases.
“Logically, in an environment where the pace for interest-rate increases was brought forth, someone would have expected Nasdaq to underperform notably, as the value of high-growth tech stocks is highly affected by changes in interest rates,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note to clients.
“Higher interest rates mean lower present values for such firms. Nonetheless, it seems that investors rushed into adding such stocks to their portfolios, perhaps to take advantage of the limited time left for low interest rates,” said Pissouros.
Also on Thursday, the U.S. dollar soared and commodity prices tumbled, though that action seemed to be calming down on Friday, with a bounce for hard-hit gold
GCQ21,
Tumbling bond yields was another reaction. The yield on the 10-year U.S. Treasury
TMUBMUSD10Y,
slipped further to 1.4888%. The yield saw its sharpest slide since June 4 between Wednesday and Thursday.
Read: Why the U.S. dollar is soaring — and what’s next — after Fed’s change in tone
Most sectors were in the red, led by financials, with HSBC
HSBC,
HSBA,
down 2.7% and BNP Paribas
BNP,
slumping 4.7%. Energy stocks fell as TotalEnergies
TTE,
BP,
and Royal Dutch Shell
RDSB,
fell 4% as those reflation trades unwound.
Not helping was data showing U.K. retail sales fell 1.4% in May, driven by decreases at food stores and on the heels of a sharp rise in the previous month, the Office for National Statistics said Friday. Economists polled by The Wall Street Journal expected retail sales to increase 1.6%.
Shares of Tesco
TSCO,
fell almost 3%, after the British grocer reported a 1% rise in retail sales 1% on the year on a comparable basis and said that its profit outlook for the full year remains unchanged.
“Tesco’s first quarter numbers look sluggish, but that’s because they’re lapping the unprecedented demand triggered by the pandemic this time last year,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, in a note to clients.
Shares of Kerry Group
KRZ,
rose 1% after the Ireland based food company said late Thursday that it will sell its consumer foods’ meats and meals business in the U.K. and Ireland to Pilgrim’s Pride
PPC,
for 819 million euros ($975.1 million).
