Europe open: Shares plunge after Powell's hawkish rate comments

European shares fell sharply at the open after the US Federal Reserve cut rates on Thursday but signalled a more cautious path for policy moves next year.

The pan-regional Stoxx 600 index was down 1.26% in early deals to 507.9. The Bank of Japan held rates steady overnight as expected and traders will now turn their attention to the Bank of England, which is also expected to make no change.

Fed chair Jerome Powell indicated there would probably be only two rate cuts in 2025 as opposed to the four predicted previously. Incoming president Donald Trump has said he will slap tariffs on imports from China, Canada and Mexico, which will push up prices.

“We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower,” Powell told a post-meeting news conference. His remarks sent shares on Wall Street and Asia plunging with the S&P 500 down 2.95% and the Nasdaq 3.62%.

“Wall Street’s reaction underscores the Fed’s delicate balancing act as it tightens its outlook on easing, forcing markets to recalibrate their rate expectations. Investors should see this as a healthy spot of profit-taking rather than an end to the party, after what’s been a fantastic run for markets since the US election,” said Hargreaves Lansdown analyst Matt Britzman.

In economic news, German consumer sentiment looked set to improve in January 2025 after picking up at the tail end of 2024, according to the GfK consumer survey.

The consumer sentiment index increased to -21.3 points going into January from the previous month’s revised reading of -23.1 points.

There were few bright spots on the equities front. UK water companies Severn Trent and Pennon gained after the industry regulator allowed a 36% rise in prices over the next five years for Britain’s long-suffering customers.

Reporting by Frank Prenesti for Sharecast.com