Europe midday: Stocks dip in anticipation of Fed rates move

Stocks fell as investors mull the prospect of a rate hike from the Federal Reserve, with basic resources under the cosh.

At midday, indices fell across the board with the benchmark Stoxx Europe 600 index down 0.34%, France’s CAC 40 falling 0.55% and Germany’s DAX 0.29% lower.

Meanwhile, oil prices rose. West Texas Intermediate was up 0.33% to $45.57 a barrel and Brent crude 0.39% higher at $46.67.

On Thursday, Fed chair Janet Yellen suggested in her testimony before Congress that the central bank could move on rates “relatively soon” as the economy is strong enough to withstand this.

“At this stage, I do think that the economy is making very good progress toward our goals, and that the judgment the [Fed policy] committee reached in November still pertains,” she told the Joint Economic Committee.

Yellen’s comments pushed up the dollar, while yields on the 10-year Treasury note hit a high for the year.

European Central Bank President Mario Draghi hinted on Friday that the central bank is likely to extend its €1.7trln bond-purchase programme next month. Speaking at the European Banking Congress in Frankfurt, Draghi said the eurozone economy remains heavily dependent on monetary stimulus.

“Despite the uplift to prices provided by the gradual closing of the output gap, a sustained adjustment in the path of inflation still relies on the continuation of the current, unprecedented financing conditions," he said.

"It is for this reason that we remain committed to preserving the very substantial degree of monetary accommodation, which is necessary to secure a sustained convergence of inflation towards level below, but close to, 2% over the medium-term.”

By early afternoon, the euro was flat against the dollar at 1.0624 after Draghi implied a stimulus boost. This helped exporters on the European exchanges but weighed on the basic resources sector, as a stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies.The Stoxx 600 sub-index for basic resources was down 1.85%.

IG market analyst Joshua Mahony said: “The dollar is once more at the forefront of investors mindsets, as the incessant rise which has dominated the post-election period continues apace. In a high growth environment, it is likely we will see investors moving into the US as a source of capital appreciation. However, the hesitancy seen in US stock markets is a clear nod to the fact that with such dollar appreciation comes an environment which is progressively more difficult for US exporters.”

In corporate news, German car-maker Volkswagen gained as it announced its plans to cut 30,000 jobs worldwide with 23,000 of them in Germany, representing a total of 5% of its global workforce.

Engineering distribution firm Electrocomponents rallied after reporting a 44% jump in first half profits to £55.1m.
DIY company Grafton Group rose as it has agreed to by Dutch ironmonger Gunters en Meuser in order to increase its presence in Amsterdam.

On the downside, Lafargeholcim declined after cutting its mid-term profit outlook and announcing plans for a CHF1bn share buyback.

Specialty chemicals company Bodycote fell despite posting a rise in revenue in the four months to the end of October.

Fed officials William Dudley, Charles Evans, Esther George, Robert Kaplan and Jerome Powell are all due to speak later on Friday.