European Stocks Fall as Bets Increase on Imminent U.S. Rate Hike

Updated on
  • Stoxx 600 advanced on Friday after Yellen’s upbeat comments
  • Volume of shares traded is 72% lower than 30-day average

European Stocks Retreat on U.K. Bank Holiday

European stocks fell amid growing speculation that the Federal Reserve will raise interest rates as soon as next month.

The Stoxx Europe 600 Index retreated 0.2 percent to 343.2 at the close of trading, after slowly paring earlier declines of as much as 0.7 percent. A gauge of auto makers posted the biggest drop, while sliding oil prices dragged energy producers lower. The volume of shares changing hands today was 72 percent lower than the 30-day average as U.K. markets were closed for a holiday.

Stocks climbed on Friday after comments by Federal Reserve Chair Janet Yellen spurred optimism about the U.S. economic recovery. Fed Vice Chairman Stanley Fischer subsequently indicated that a tightening is possible at the next review, sending U.S. equities lower. The probability of a September rate hike stands at 36 percent, compared with 24 percent at the start of last week, with odds for a December move now at 62 percent.

“Declines today have a lot to do with the aftermath of Jackson Hole and raised expectations of a rate hike this year, so that leads to a bit of adjustment in the market,” said Samy Chaar, a Geneva-based strategist at Lombard Odier, which manages about $170 billion. “If they manage to raise rates, that will be relatively good news but it does entail a little bit more tightening in the system.”

European equities have swung between weekly gains and losses all month, with the Stoxx 600 trading in a tight range and struggling to find a direction after a rebound of as much as 12 percent following the aftermath of Britain’s secession vote.

Among stocks moving on corporate news today, Alstom SA climbed 2.9 percent after winning a contract to design and build new high-speed trains for Amtrak. Banca Monte dei Paschi di Siena SpA rose 1.3 percent after a person with knowledge of the matter said the Italian lender is considering using a debt-for-equity offer as a way to reduce the size of its planned 5 billion euros ($5.6 billion) rights issue.