European shares retreat as markets mull hawkish US Federal Reserve

European shares declined on Thursday, with the STOXX 600 index closing 0.3% lower, as investors increased bets on a US Federal Reserve rate hike despite easing oil prices.

European shares slipped on Thursday as investors increased bets on a U.S. Federal Reserve rate hike later this year after policymakers struck a hawkish tone, though easing oil prices offered ‌some relief on inflation. The pan-European STOXX 600 index closed 0.3% lower, snapping a five-day winning streak. Regional bourses were mixed, with France and Germany posting gains while Italy and Spain declined.

Britain's FTSE 100 ended the day 1% lower as losses in heavyweight energy and healthcare stocks weighed. The Bank of ‌England kept interest rates on hold at 3.75% in June, judging it premature to raise rates given uncertainty about inflation pressures. Across Europe, oil ‌and gas shares eased 1.5% as oil prices fell to their lowest level since the first trading day of the Iran war. U.S. President Donald Trump signed a deal with Iran to end the war that has disrupted global energy supplies. The interim pact has brought relief for markets, with energy-price-sensitive travel and leisure shares rising 0.8% on ⁠Thursday. However, ​that relief ran short in ⁠the face of monetary policy uncertainty.

NEW FED CHAIRMAN In the U.S., the Fed held rates steady on Wednesday, but nine policymakers projected one rate hike this year. In an ⁠early sign of new Fed Chairman Kevin Warsh's influence, the central bank's statement removed guidance about future rate moves. "Transitions like this are unsettling for markets. Toss ​in economic and political volatility, and you get a combination that will confront, confound, confuse, and upset Warsh's plans to pull the Fed ⁠into his promised land," said Steven Blitz, chief U.S. economist at GlobalData.TS Lombard.

The European Central Bank raised borrowing costs last week and traders anticipate another 25-basis-point rate hike by year-end, ⁠according ​to LSEG-compiled data. Mining shares lost 3.1% and were the biggest decliners among the major STOXX subsectors as commodities came under pressure against a firmer dollar. Automakers were also at the bottom, with Mercedes-Benz , Volkswagen and Stellantis down between 2.8% and 4.6%. BMW dropped 4% after ⁠sliding 8.3% in the last session after issuing a shock profit warning. European IT services firms dropped sharply after Accenture cut its full-year guidance. Capgemini ⁠hit a six-year low to fall ⁠8.9% while Cancom, Atos , Reply fell between 2% and 6.9%. Edenred jumped 17.2% as the French voucher company confirmed it had been approached by investment funds, following a media report about possible takeover interest from ‌investment firm BC Partners.