Europe shares slump on jitters ahead of ECB rate decision

Banks declined 1.3%, dragged by a near 2% fall in HSBC after a small group of its Hong Kong-based retail investors launched a renewed campaign, calling on the lender to restore its pre-pandemic dividend and set a plan to spin off assets. H&M fell 4.2%, which weighed on the retail sector, after the quarterly sales of the world's second-biggest fashion retailer failed to match a recent pick up in expectations of some analysts.

European shares slumped on Thursday, as risk sentiment waned ahead of an interest rate decision from the bloc's central bank, after the U.S. Federal Reserve's hawkish comments on rate hikes rattled global markets.

The region-wide STOXX 600 was down 1.2% at 0915 a.m. GMT, and appeared set for its worst day since late September, following a dismal trading session on Wall Street overnight after the Fed signalled more rate hikes to come. The European Central Bank is expected to dial down to a 50 basis point (bps) rate hike at 1315 GMT, after raising rates by an unprecedented 200 bps since July to rein in a surge in prices driven in part by the Russia-Ukraine war.

However the ECB, like the Fed, may flag further hikes to persuade investors that it is still serious about fighting inflation, though price pressures in the bloc have shown signs of easing recently. "Some of the roller-coaster of emotions from the U.S. has been feeding through into European stocks and the market is not as relaxed as it might have been about being very near to the end of the hiking cycle," said Fabio Balboni, senior European economist at HSBC.

"There is a very high probability that the ECB will signal that they've still work to do in terms of rates." UK's blue-chip FTSE 100 was down 0.7%, with investors eyeing the Bank of England's interest rate decision also due later in the day.

Among STOXX 600 sectors, energy was the biggest loser, down 1.9%, tracking crude prices lower, while the retail sector declined 1.8%. Banks declined 1.3%, dragged by a near 2% fall in HSBC after a small group of its Hong Kong-based retail investors launched a renewed campaign, calling on the lender to restore its pre-pandemic dividend and set a plan to spin off assets.

H&M fell 4.2%, which weighed on the retail sector, after the quarterly sales of the world's second-biggest fashion retailer failed to match a recent pick up in expectations of some analysts.