European stocks lower; Citigroup downgrades European banking sector

By Peter Nurse 

Investing.com - European stock markets weakened Thursday as investors digested the latest interest rate increase by the U.S. Federal Reserve ahead of a policy-setting meeting by the Bank of England.

At 04:40 ET (08:40 GMT), the DAX index in Germany traded 0.2% lower, the CAC 40 in France dropped 0.2% and the FTSE 100 in the U.K. fell 0.5%.

The Fed raised its benchmark interest rate by 25 basis points as widely expected, forecasting at least one more hike this year, and saying it has no intention of cutting interest rates this year.

The central bank also trimmed its outlook for annual GDP, with the banking turmoil likely to have an impact on growth.

Adding to the negative tone were comments from Treasury Secretary Janet Yellen, as she said the government "is not considering insuring all uninsured bank deposits". 

Speculation about such a move had boosted confidence in the sector earlier in the week.

Citigroup downgraded Europe's banking sector to ‘neutral’ from ‘overweight’, warning the likely continued monetary policy tightening adds to worries stemming from the turmoil in the global banking sector.

"The European banking sector's fundamentals look healthy. But the ongoing confidence crisis could limit banks' risk appetite and reduce the flow of credit," analysts at the bank said, in the note.

The Bank of England meets later in the session, and is expected to follow the Fed’s lead with a 25-basis-point hike, especially after U.K. inflation unexpectedly rose back above 10% in February, data showed on Wednesday.

EU leaders are also set to meet in Brussels for a two-day summit, looking for ways to compete with the United States and China on a long-term basis.

In the corporate sector, Ryanair (IR:RYA) stock fell 0.4% after the low-cost carrier’s CEO Michael O’Leary said the airline is in the early stages of securing a major new aircraft order from jet maker Boeing (NYSE:BA).

Oil prices fell Thursday, snapping a three-day advance, after the Fed hiked interest rates while U.S. crude oil stocks grew again, rising for 12 out of the last 13 weeks.

Data from the Energy Information Administration showed that U.S. crude oil inventories grew by just over 1 million barrels, climbing to the highest level since May 2021.

By 04:40 ET, U.S. crude futures traded 0.3% lower at $70.72 a barrel, while the Brent contract dropped 0.1% to $76.60. 

Both crude benchmarks settled on Wednesday at their highest close since March 14 after the dollar slid to a six-week low.

Additionally, gold futures rose 1.5% to $1,979.05/oz, while EUR/USD traded 0.4% higher at 1.0898.