Europe midday: Stocks fall after Fed, BoJ; Brexit woes continue

European stocks fell on Thursday after the Federal Reserve and the Bank of Japan stood pat on policy, and amid ongoing concerns about Brexit.

At midday, the benchmark Stoxx Europe 600 index was down 0.8%, Germany’s DAX was off 0.7% and France’s CAC 40 was 0.5% lower.

In London, the FTSE 100 was 0.6% weaker after the Bank of England kept interest rates at 0.5% and the asset purchase programme at £375bn, as expected.

Although policy decisions were the big theme of the day, the issue of Brexit was never far from investors’ minds as polls continued to suggest the Leave campaign was in the lead.

Meanwhile, oil prices were in the red. West Texas Intermediate was down 1.5% to $47.31 a barrel while Brent crude was 1.4% weaker at $48.24.

On Wednesday, the US Federal Reserve left interest rates unchanged at 0.25% to 0.50%, as widely expected, with Chair Janet Yellen conceding that the upcoming UK referendum had been a factor in the decision. The central bank downgraded its economic growth forecasts and the projections of policy members showed a majority still wanted two rate hikes this year, but six of them now expect only one compared to one member in March.

Goldman Sachs said: “The statement and Summary of Economic Projections were more dovish than expected in several respects. First, the number of participants anticipating only one rate increase this year rose to six from just one in March—more than we had expected. Second, funds rate projections for 2017 and 2018 declined more than we expected: the median estimate for 2017 fell by 25bp to 1.6%, and for 2018 by 63bp to 2.4%.

“Third, the statement expressed slightly more concern about developments in inflation expectations, noting that market-based measures ‘declined’ (instead of ‘remained low’), and that only ‘most’ survey-based measures were little changed. Lastly, Kansas City Fed President Esther George voted in favour of holding policy rates unchanged—another indication of a more cautious mood about the committee.”

Investors were also digesting the latest policy announcement from the Bank of Japan, which left its key interest rate at -0.1% and held off from providing more stimulus, keeping its annual target for expanding the monetary base at Y80trn. The Nikkei slumped on the news, while the yen breached Y104 to the dollar.

On the corporate front, UBS and Credit Suisse were under the cosh amid concerns about capital requirements after the Swiss National Bank said they were likely to need to raise an extra CHF10bn to meet new leverage requirements.

Still to come on the macroeconomic calendar, US CPI, the Philadelphia Fed survey and initial jobless claims are at 1330 BST while the NAHB housing market index is at 1500 BST.