Europe midday: Shares down as investors eye ECB

The rally in European markets came to a shuddering halt on Thursday after the US Federal Reserve paused rate rises, but said more could be on the way, China’s economic recovery appeared to be sputtering and investors awaited the latest policy decision from the European Central Bank.

The pan-European Stoxx 600 index was down 0.41% at midday with most major regional bourses lower. The Fed left its benchmark funds rate window at 5-5.25%, and chair Jerome Powell said the bank needed to gather more information about the economy to establish next steps.

However, in a surprise move, the central banker also suggested two more rises could be on the way this year

Analysts expect the ECB will raise rates by 25 basis points for the eighth successive time and confirm that the pace of quantitative tightening will increase.

“The accompanying comments led investors to dub the decision as a “hawkish hold” as Chair Powell gave an overview of the latest thinking,” said Interactive Investor head of markets Richard Hunter.

“With US growth and the labour market showing few signs of wilting, the groundwork is laid for an economy which at present can clearly withstand the hiking pressure it has been under. By the same token, the previously announced moderation of consumer prices was followed yesterday by a release which showed producer prices falling more than expected.”

Sentiment was also hit after a deluge of data showed China's economic recovery was stalling. The People’s Bank of China cut a key benchmark, its medium-term loan rate, by 10 basis points and the yuan hit a six-month low of 7.1783 per dollar.

Data on industrial output and retail sales fell short of market forecasts.

In equity news, shares in Swedish clothing giant H&M gained as the company said June sales had started well despite weaker-than-expected second quarter sales.

Reporting by Frank Prenesti for Sharecast.com