European stocks fell in early trade on Friday after Federal Reserve Chair Jerome Powell said a half-point rate hike next month was “on the table.”
The pan-European Stoxx 600 fell 1% shortly after the market opened, with the retail, technology and oil & gas sectors posting the biggest losses.
Friday’s market open in Europe comes after a dramatic reversal in US equity markets on Thursday, with major moving averages closing lower, erasing earlier gains.
Markets… have to digest a much steeper, much faster rate path than they thought possible a week ago, a month ago, three months ago.
Daniel Morris
Chief Market Strategist, BNP Paribas Asset Management
Earlier Thursday, Federal Reserve Chair Jerome Powell commented on the possibility of an above-average rate hike next month, which spooked markets. During an International Monetary Fund roundtable hosted by CNBC’s Sara Eisen, Powell said that taming inflation is “absolutely essential.”
“I would say 50 basis points will be on the table for the May meeting,” he added.
US Treasury yields also rose on Powell’s comments, while stocks in Asia fell on Friday.
“Markets… have to digest a much steeper, much faster rate path than they thought a week ago, a month ago, three months ago. So I think that adjustment is still happening.” Daniel Morris, chief market strategist at BNP Paribas Asset Management, told CNBC on Friday.
“I think the key question for the direction of the markets will be: when will this process stop? When will we sufficiently and fully price in where interest rates will be a year from now. And I think when that happens, and hopefully that’s soon, then we’re going to see real stabilization in the markets.”
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bearing moves
In retail, B&M fell more than 5% after announcing its CEO will retire next year. In addition, data from the UK showed that retail sales fell more-than-expected in March.
“The sharp drop in retail sales in March looks more like the start of a period of weakness in consumer spending than just a blip,” Samuel Tombs, UK chief economist at Pantheon Macroeconomics, said in a statement on Friday.
Shares in French luxury retailer Kering also fell more than 5% on concerns over its sales performance in China, where a zero-Covid policy is worrying investors.
SAP published the results on Friday and reported a drop in sales due to the exit from Russia. The German software giant said its decision to leave Russia following its invasion of Ukraine is expected to result in a negative revenue impact of around 300 million euros ($325 million).
Speaking to CNBC on Friday, the company’s CEO, Christian Klein, told CNBC that generating revenue from cloud subscriptions is “very difficult” and that the transformation plan is ahead of schedule.
French choice
French voters go to the polls on Sunday. In the second – and final – round of the elections, incumbent Emmanuel Macron will face anti-immigrant party leader Marine Le Pen.
In a note on Thursday, Goldman Sachs described the election as a defining moment in France’s political path.
“If Mr. Macron is re-elected, we would expect him to revive his reformist agenda as a continuation of his integration plan for Europe,” said the analysts, led by Sven Jari Stehn.
“To a large extent, these reforms are embedded in our current forecasts. Should M. Le Pen be elected, we would expect an institutional impasse due to the likely lack of a parliamentary majority in next June’s general elections and significant tensions with EU partners.”
— CNBC’s Yun Li contributed to this report.