Europe Markets

European stocks close slightly lower after Fed signals 2023 rate hikes; CureVac sinks

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Key Points
  • Global market sentiment has been dominated by the reaction to the latest Fed policy meeting in which the central bank raised inflation expectations and forecast rate hikes as early as 2023.

LONDON — European stocks pulled back on Thursday as global markets reacted to the Federal Reserve's signal that rate hikes will come sooner than expected.

The pan-European Stoxx 600 closed down 0.1%, trimming some earlier losses, with utilities shedding 1% to lead losses while banks bounced 0.5% on the prospect of future interest rate hikes.

Global market sentiment has been dominated by the reaction to the latest Fed policy meeting in which the central bank raised inflation expectations and forecast rate hikes as early as 2023.

As expected, the policymaking Federal Open Market Committee unanimously left its benchmark short-term borrowing rate anchored near zero. But officials indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024. The so-called dot plot of individual member expectations pointed to two hikes in 2023.

U.S. markets rallied off their intraday lows Wednesday after Fed Chair Jerome Powell said projections for future rate increases should be "taken with a big grain of salt" and reiterated that he believes that inflation is transitory.

Powell also did not issue guidance on when the central bank will begin tapering its bond-buying program.

The Fed chair said the central bank will continue to monitor the economic recovery and will provide "advanced notice" before announcing any updates regarding tapering.

On Wall Street Thursday, the Dow Jones Industrial Average fell for a second day as investors digested the Fed's update.

Read more: The Fed moves up its timeline for rate hikes as inflation rises

Back in Europe, euro zone inflation rose 0.3% month-on-month in May for a 2% annual increase on the back of higher energy and services prices, final Eurostat figures confirmed on Thursday, slightly exceeding the European Central Bank's target.

The Swiss National Bank on Thursday increased its inflation and GDP forecasts but vowed to keep monetary policy ultra-loose to counter the highly valued Swiss franc.

In terms of individual share price movement, German biotech firm CureVac shares dropped 43% after a late stage trial of its Covid-19 vaccine missed its targets, casting a potential mass delivery to the European Union into doubt.

On the Stoxx 600, British travel booking company Trainline jumped 5% after posting a sharp rise in first-quarter net sales, while safety equipment company Halma fell 4.5%.

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- CNBC's Jeff Cox and Hannah Miao contributed to this market report.