Global equity sell-off sends European shares sharply lower

The pan-European STOXX 600 dropped 1.4% in broad-based selling and was on course for its worst day in nearly two weeks, as investors looked forward to the U.S. Federal Reserve's meeting next week for details on how it intends to tackle high inflation. "There's a lot of speculation - four, five, six U.S. rate hikes this year, a 50 basis point hike in March - which has fed markets' underlying anxiety," said Craig Erlam, a senior market analyst at OANDA.

European stocks slumped on Friday, tracking a sell-off in global equity markets that was sparked by jitters around the pace of monetary policy tightening by central banks and weak economic data. The pan-European STOXX 600 dropped 1.4% in broad-based selling and was on course for its worst day in nearly two weeks, as investors looked forward to the U.S. Federal Reserve's meeting next week for details on how it intends to tackle high inflation.

"There's a lot of speculation - four, five, six U.S. rate hikes this year, a 50 basis point hike in March - which has fed markets' underlying anxiety," said Craig Erlam, a senior market analyst at OANDA. "We can never underestimate the knock-on effects of the U.S. on global markets, and Europe is facing challenges of its own with the Omicron variant and energy crisis," he said, adding that markets were even starting to price in potential tightening by the European Central Bank (ECB).

Cementing those concerns, ECB accounts showed policymakers argued at a meeting last month that inflation could "easily" get stuck above target, and the central bank should keep the door open to tightening policy. Further, euro zone consumer prices jumped at a record pace in December, boosted by a surge in energy prices and supply chain bottlenecks.

The STOXX 600 is set for a third straight weekly decline, dragged by a more than 2% drop in tech stocks on fears of faster U.S. rate hikes ahead of the crucial Fed meeting. Adding to worries, the Bank of England will press ahead with its tightening cycle next month as red-hot inflation runs well ahead of target, a Reuters poll found.

However, at some point, investors will start to be drawn back in towards European markets once the peak inflationary period of late first-quarter, early second-quarter passes, and economic data starts to improve, Erlam said. Miners retreated after hitting their highest since July 2008 on Thursday.

Anglo-Australian miner Rio Tinto tumbled 3.1% after Serbia revoked its lithium exploration licences over environmental concerns, hurting the group's ambition to become Europe's largest supplier of the metal. Airbus lost 1.5% after saying it had cancelled a contract with Qatar Airways for 50 A321neo jets, broadening a $600 million-plus dispute with the Gulf carrier over the larger A350.

Siemens Energy plunged 11.4% after cutting its forecast as wind unit Siemens Gamesa warned of prolonged supply chain issues, renewing pressure on the German firm to fully take over the unit. Siemens Gamesa dropped 12.5%, joining Siemens Energy as the two worst performers on the STOXX 600.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)