Europe Markets

European stocks close down 4% on gloomy Fed outlook, fears of a second virus wave

Key Points
  • The pan-European Stoxx 600 closed down by 4% provisionally, with autos plunging 6.9% as all sectors and major bourses tumbled into negative territory.
  • The Fed said it expects the U.S. economy to contract by 6.5% in 2020 before expanding by 5% in 2021. 
  • Stocks on Wall Street also turned lower, with the Dow Jones Industrial Average plummeting over 1,000 points.

European stocks closed sharply lower Thursday as investors digested the latest comments from the U.S. Federal Reserve and fears of a second wave of coronavirus infections.

The pan-European Stoxx 600 closed down by 4% provisionally, with autos plunging 6.9% as all sectors and major bourses tumbled into negative territory.

Investor reaction to the Fed's latest economic forecast was in the spotlight. The U.S. central bank kept interest rates unchanged on Wednesday and indicated it does not expect to raise them through 2022. The Fed also said it expects the U.S. economy to contract by 6.5% in 2020 before expanding by 5% in 2021.

"We're not thinking about raising rates. We're not even thinking about thinking about raising rates," Fed Chairman Jerome Powell said. "What we're thinking about is providing support for the economy. We think this is going to take some time." 

Coronavirus developments also remain a key concern for markets. On Wednesday, the cancellation of the hugely popular Coachella and Stagecoach music festivals were announced, as California's Riverside County Public Health Officer Dr. Cameron Kaiser issued an order, citing fears of worsening Covid-19 spread in the fall.

Several U.S. states that were among the first to reopen from lockdown have reported surges in cases and hospitalizations, including Texas, Florida and Arizona. Stocks on Wall Street also turned lower on Thursday, with the Dow Jones Industrial Average plummeting over 1,000 points.

Biggest movers

Lufthansa stock fell 9% after the German airline announced that up to 26,000 employees could be at risk of job losses.

Renault was the second-worst individual performer, plummeting 14% after Chairman Jean-Dominique Senard told the French Parliament a further state cash injection into the car maker "isn't on the table."

Unilever was one of only a handful of European stocks in positive territory, gaining half a percent after the company said it would merge its dual-headed structure to allow for greater M&A flexibility.

Just Eat Takeaway shares reversed early gains to shed nearly 4% after the company announced a $7.3 billion deal to buy rival GrubHub.

- CNBC's Jeff Cox contributed to this report.