FX.co ★ European Stocks Close Weak On Interest Rate Concerns, Political Uncertainty

European stocks closed weaker on Tuesday as uncertainty surrounding interest rate prospects and changes in leadership following the recent elections in the U.K. and France rendered the market mood cautious, prompting investors to lighten their commitments.

A series of disappointing corporate updates further dampened sentiment. Additionally, Fed Chair Jerome Powell’s assertion that the central bank does not plan to reduce interest rates until it is confident that inflation is sustainably moving toward 2% contributed to the downturn.

Investors were also poised for comments from European Central Bank board member Piero Cipollone for further direction.

The pan-European Stoxx 600 index fell by 0.9%. The U.K.’s FTSE 100 dropped by 0.66%, Germany’s DAX declined by 1.28%, and France’s CAC 40 decreased by 1.56%, while Switzerland’s SMI edged down by 0.12%.

Among other European markets, Austria, Belgium, Denmark, Finland, Iceland, the Netherlands, Norway, Russia, Spain, Sweden, and Turkey ended the day weaker.

Poland closed higher, whereas Greece and Portugal remained flat.

In the U.K. market, BP declined by approximately 4% after the company warned of "significantly lower" refining margins and flagged impairment of $1 billion to $2 billion on the value of a plant in Germany.

Burberry Group, Next, Persimmon, Melrose Industries, B&M European Value Retail, Frasers Group, Rolls-Royce Holdings, Associated British Foods, Barratt Developments, Barclays, Marks & Spencer, Centrica, Lloyds Banking Group, and Natwest Group registered losses between 2% and 4.5%.

Conversely, Severn Trent rallied by 2.5%, while Pershing Square Holdings, BT Group, Smith & Nephew, Haleon, Entain, Endeavour Mining, Halma, and United Utilities gained between 1% and 1.8%.

In the German market, Mercedes-Benz ended nearly 4% lower. Infineon, Bayer, Siemens, Continental, HeidelbergCement, BASF, Deutsche Post, MTU Aero Engines, SAP, Commerzbank, Zalando, Qiagen, RWE, Adidas, Fresenius, and Deutsche Telekom experienced losses between 1% and 2.5%.

However, Covestro, Rheinmetall, and BMW posted moderate gains.

In the French market, Dassault Systèmes fell by more than 5% as the company cut its 2024 earnings target.

Saint-Gobain, Capgemini, BNP Paribas, Airbus Group, Société Générale, Vinci, TotalEnergies, ArcelorMittal, Bouygues, STMicroelectronics, Essilor, and Legrand ended down between 2% and 3.5%.

On the economic front, U.K. retail sales declined in June due to colder weather earlier in the year, which hindered consumer spending, according to the British Retail Consortium (BRC).

Total retail sales fell by 0.2% in June compared to the previous year. BRC Chief Executive Helen Dickinson noted that sales of weather-sensitive categories such as clothing and footwear, as well as DIY and gardening, were particularly hard hit.

In his testimony before the Senate Banking Committee, Federal Reserve Chair Jerome Powell indicated that more favorable data would bolster the central bank's confidence that inflation is moving sustainably toward its 2% target, potentially leading to an interest rate cut.

"The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%," Powell said in prepared remarks.

"Incoming data for the first quarter of this year did not support such greater confidence," he continued. "However, the most recent inflation readings have shown some modest further progress, and more favorable data would strengthen our confidence that inflation is moving sustainably toward 2%."