Europe close: Stocks slump after ECB sounds more cautious note

European shares finished sharply lower as the European Central Bank sounded a less dovish note and following a sharp drop in US stocks at the open.

"Markets barely had time to digest the BoE news before the ECB came thundering in with its own shift. A rate hike from this most dovish of central banks now looks very likely this year, having been viewed as all but impossible just a few months ago," said IG chief market analyst Chris Beauchamp.

"But what it can do against soaring energy prices is debateable, and like the BoE, the ECB could find that its real power to support the economy is quite limited, if politicians refuse to shift their policy outlooks too."

The pan-European Stoxx 600 index was down 1.76% at 468.63, alongside a similar retreat in nearly all major regional bourses. Britain’s FTSE 100 outperformed and was down 0.06%. Stocks on Wall Street meanwhile were getting walloped following a disappointing quarterly earnings report for Facebook owner Meta overnight.

Thus, while the Stoxx 600's gauge of lenders' shares added 0.22%, that for Technology issues dropped by 3.54%.

The European Central Bank stood pat on monetary policy at Thursday's meeting and its chief, Christine Lagarde, said it would not be pushed into "rushing" interest rate hikes.

However, unlike at the ECB's December meeting, she did not reiterate that a first rate hike in 2022 was very unlikely. Indeed, she appeared to leave the door open to a possible rate hike in the back half of the year.

That sufficed to push euro/dollar higher by 1.19% to 1.1439.

In London, the Bank of England was lifted its key rate by 25 basis points to 0.5% - the threshold at which it has said previously it would begin to unwind its £895bn quantitative easing programme.

The Monetary Policy Committee voted for the rise by a majority of 5-4, with the four dissenters pushing for larger 50bp hike.

On the equity news front, shares in UK telecoms and broadcasting company BT Group fell 5% as it said it was in talks with Discovery of the US about forming a sport broadcasting joint venture and reported a 3% drop in profit for the first nine months of the year.

Shares in UK government contractor Compass jumped 4% as it reported revenue growth of 38.6% in the first quarter, with sales reaching 97% of their pre-Covid levels.

Shell shares ended the session little changed despite the energy giant reporting soaring fourth-quarter profit on the back of surging oil and gas prices.

Nordea shares fell 2%, despite the Nordic region's biggest lender posting better-than-expected fourth quarter profit and lifting its return-on-equity target to more than 13%.

Shares in Swedish ball bearing maker SKF fell more than 9% as it reported higher-than-expected fourth-quarter net profit but cautioned that it expects supply-chain constraints and higher costs to continue.

UK publisher Future slumped nearly 10% despite an upbeat trading statement and reaffirmed annual guidance.