UK rates surprise revives recession fears as equities slide

A hawkish surprise from the Bank of England (BoE) and cautious remarks from the chairman of the US Federal Reserve revived recession fears and triggered angst in European markets on Thursday.

BoE governor Andrew Bailey struck an uncompromising tone after the central bank opted to raise rates by a heftier-than-expected 50 basis points.

“We’re not expecting, we’re not desiring a recession, but we will do what is necessary to bring inflation down to target,” he told reporters.

Dublin

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Irish shares were already trending downwards when BoE’s rates decisions took markets “a little bit by surprise” on Thursday, said traders in Dublin as the Iseq index shed 0.75 per cent, broadly in line with its European peers.

Stocks with exposure to the UK were in the firing line, with Paddy Power owner Flutter off by 2.1 per cent to close at €182.70 per share. Hotel group Dalata also came under pressure, also shedding 2.1 per cent to finish off the session at €4.65 amid fresh concerns about the trajectory of the UK economy this year.

Irish banks, meanwhile, also gave up ground. Bank of Ireland fell by more than 2 per cent to €9.32 per share, AIB declined 1.4 per cent to €3.98 per share while Permanent TSB gave back almost 0.5 per cent to close out the session at €2.22.

A mixed-bag trading update from its UK rival DS Smith saw shares in cardboard and packaging maker Smurfit Kappa decline a further 0.8 per cent, compounding Wednesday’s 6 per cent drop off.

Moving up the table, shares in insulation giant Kingspan added 1.7 per cent to €57.40 per share, reversing recent trends. Traders said that Ryanair remained a “best-in-class” performer in the airline sector, adding 0.2 per cent to €16.72 per share.

London

The BoE’s surprise jumbo rate hike sparked panic in UK markets, with the FTSE 100 falling 0.75 per cent and the mid-cap FTSE 250 off by 1.3 per cent.

One bright spot amid the gloom was Ocado. Shares in the retail technology and online supermarket company soared by as much as 40 per cent amid market speculation that it could be the target of a takeover.

A handful of other stocks eked out modest gains, including Coca Cola, up 0.5 per cent on the session after announcing its takeover of Finlandia vodka on Wednesday.

Otherwise, the London Stock Exchange was a sea of red, with declines of between 1 per cent and almost 3.8 per cent for supermarket titans Sainsbury and Tesco against a darkening outlook for UK consumers.

Consumer discretionary stocks like Auto Trader also suffered. Shares in the online car marketplace slipped almost 3.4 per cent per cent while package holiday operator Tui’s share price declined by 1.4 per cent.

Europe

All industry subsectors fell on Thursday, led in part by a decline in UK stocks after the BoE’s rates decision raised fresh concern the economy may tip into a recession. Both the pan-European Stoxx 600 and the blue-chip Stoxx 50 indices were off by around 0.5 per cent. The French Cac 40, meanwhile, fell by almost 1 per cent while the German Dax index slid 0.3 per cent.

European banks bore the brunt of the panic, with shares in BBVA, Santander, BNP Paribas and ING down between 0.6 per cent and 2.2 per cent.

Health and pharma stocks also sold off with Sanofi and Bayer off by 0.4 per cent and 0.6 per cent respectively.

New York

Wall Street’s big stock indices were flat to lower in trading as US Federal Reserve Chair Jerome Powell suggested more US interest rate hikes may be needed in the near future. The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite were all off the pace by around 0.2 per cent by closing bell in Dublin.

Mr Powell, in his second day of testimony to US lawmakers, said a strong majority of the central bank committee feels there is a little further to go with rate hikes.

Eight of the 11 big S&P sectors declined, with materials and energy leading losses.

Spirit AeroSystems tanked 13.4 per cent and plane-maker Boeing slipped 3.5 per cent as the parts supplier said it will suspend production at its plant in Wichita, Kansas, after workers announced a strike from June 24th.

US-listed shares of Accenture fell 3.9 after the IT consulting firm forecast fourth-quarter revenue below market expectations.

– Additional reporting: Bloomberg, Reuters