Europe finishes deep in the red as rising rates weigh; household goods drop 3%

  • U.S. Federal Reserve Chairman Jerome Powell said on Wednesday that the bank was a "long way" from neutral on interest rates.
  • Danske Bank shares fell following news that the bank will be investigated by the U.S. Department of Justice over a money laundering scandal.
  • Italian Prime Minister Giuseppe Conte said Wednesday that the government deficit will be decreased in the next three years, despite a planned surge for 2019.

Markets in Europe closed Thursday's sharply lower, weighed down by weakness seen in markets overseas.

The pan-European Stoxx 600 sank 1.08 percent by the close, with the majority of the region's sectors in the red. Household goods were the worst performers, tumbling 3 percent overall.

The FTSE 100 sank 1.22 percent by the close, while France's CAC 40 slid 1.47 percent and Germany's DAX fell 0.35 percent. Most markets in peripheral Europe closed in the red.

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In the corporate space, banks was one of the few sectors to close higher. On Wednesday, shares in Greek banks saw a massive plunge. Investors fear that regulators will demand further capital. However, on Thursday, Greek lenders closed trade on positive ground, with Piraeus Bank up over 9 percent and the National Bank of Greece also closing up around 9 percent. The upbeat sentiment helped lift other European banks.

The biggest sectoral loser was household gains, tanking 3 percent overall, with a number of luxury groups dropping to the bottom of the group. Burberry, LVMH and Christian Dior all closed down 4 percent or more.

Looking across the European index, Electrocomponents jumped over 4 percent, after reporting that first-half profits jumped 27 percent from a year ago. Meanwhile, Btg rose 5.1 percent after the healthcare group upgraded its product sales guidance.

Elsewhere, shares in Danske Bank dropped 4.6 percent following news that the bank will be investigated by the U.S. Department of Justice over a money laundering scandal. Such a probe could result in a big fine.

Danish firm Ambu published an update on its 2020 strategy Thursday and upgraded its financial targets. While the group stated that is outlook for the 2017/18 year remained unchanged, shares of the firm tanked 14.7 percent.

Rates on the rise

Markets in Europe extended losses in afternoon trade, on the back of negative trading seen on Wall Street. Stocks in both the U.S. and Asia had been on edge Thursday, as interest rates hit new multiyear highs. The yield on the benchmark 10-year U.S. Treasury note notched its highest level in over 7 years. The rise in interest rates come after better-than-expected U.S. economic data on Wednesday and fresh comments from the chair of the U.S. central bank.

On Wednesday, Fed Chair Jerome Powell said that the bank was a "long way" from neutral on interest rates. Many analysts have been forecasting the institution will hike rates a further three times, once this year and twice in 2019. Powell's comments pushed the dollar and bond yields higher, with high yields in bond markets often seen as a negative for stocks, given that they mean higher costs for companies. Around Europe's close Thursday, the Dow tumbled more than 200 points.

Investors also kept a close eye on Italian politics. Prime Minister Giuseppe Conte said on Wednesday that the government deficit will be decreased in the next three years, despite the surge planned for 2019. Market players are worried about extra spending in the third largest euro economy, given its 130 percent of GDP debt pile. On Thursday, Italy's Deputy Prime Minister Luigi Di Maio said that the economic growth targets detailed in the government's multi-year budget plan would not exceed 1.5 or 1.6 percent per year, Reuters reported.

And Brexit continues to be an area of focus for traders, particularly in the currency markets. The British pound extended gains Thursday amid reports that the U.K. could join a customs union within the European Union. Both Ireland and the EU have reportedly welcomed such a proposal. Sterling climbed almost 0.6 percent against the dollar, above the $1.30 threshold, around the Europe close.