Europe open: Stocks slip as Fed-inspired rally loses steam

European stocks were in the red in early trade, taking their cue from negative US and Asian sessions as the Federal Reserve-inspired rally lost steam.

Stocks in Europe racked up solid gains on Thursday as investors cheered the Fed’s first rate hike in nearly a decade and reassurance from chairwoman Janet Yellen that the tightening path would be gradual.

But it was a different picture on Friday morning. At 0855 GMT, the benchmark Stoxx Europe 600 index was down 0.5%, France’s CAC 40 was down 0.6% and Germany’s DAX was 0.7% weaker.

“While Wednesday’s Fed rate hike removed one cloud of uncertainty from the markets thinking in 2015, speculation about when the next one is likely to occur is not expected to remain too far away, given the divergence between what policymakers expect to occur one year on from here, on their dot plot expectations, and what investors expect to happen,” said Michael Hewson, chief market analyst at CMC Markets.

Investors were digesting some news out of Asia.

“Concerning China, their version of the 'Beige Book' seems to indicate that their domestic economy might be in deeper trouble than previously thought meaning not only that a turnaround might still be a long way off but also that worse might is still to come before things finally get better,” said Markus Huber, senior analyst at Peregrine & Black.

“Overall sentiment remains neutral for now, however much of today's market direction will depend on how US stocks will fare and if yesterday's selloff has legs or if bargain hunters are already willing to jump back into the markets,” said Huber.

China’s Beige Book showed that conditions in the world’s second-largest economy worsened in the fourth quarter.

According to a private survey by China Beige Book International, national sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the previous quarter.

Meanwhile, the Bank of Japan kept its base money target under the stimulus programme but set up a new one to buy exchange-traded funds, extend the maturity of bonds it owns and up its purchase of key risky assets.

Markets in Japan briefly rallied on the news, but BoJ governor Haruhiko Kuroda said at the press conference following the announcement that the latest policy changes did not amount to additional easing and were designed to give flexibility to adjust policy.

On the corporate front, French supermarket operator Casino Guichard-Perrachon was under the cosh again, extending losses from the previous session when research firm Muddy Waters said it was one of the “most overvalued and misunderstood” companies it had come across.

Altice NV was also on the back foot after the US Justice Department asked that a decision on the company’s bid to buy Cablevision Systems Corp be deferred until a national security review can be carried out.