On Thursday, European shares experienced a decline as investors analyzed the mixed signals from the US Federal Reserve regarding its interest rate trajectory while awaiting the rate decision from the European Central Bank later in the day.
The pan-European STOXX 600 index dropped by 0.8 percent, with automobile shares leading the losses, falling by 2.3 percent. The oil and gas index, however, was the sole gainer, rising by 1.3 percent.
As anticipated, the Fed raised its key benchmark rate by 25 basis points to the range of 5 percent to 5.25 percent. However, it removed the statement suggesting that further rate hikes would be necessary. Fed Chair Jerome Powell later clarified that it was premature to declare an end to the rate hike cycle.
Now, attention turns to the rate decision of the European Central Bank, scheduled for 12:15 p.m. GMT. Analysts expect a quarter percentage point rate hike, but the possibility of a larger hike remains open as the region grapples with persistent inflation concerns.
London's FTSE 100 also experienced a decline, primarily driven by losses in the mining sector, as commodity-heavy stocks dragged down the index. Additionally, remarks by Federal Chair Jerome Powell about ongoing inflation concerns contributed to the overall downbeat market sentiment. The FTSE 100 and FTSE 250 indices both dropped by 0.5 percent as of 7:18 a.m. GMT.
Base metal miners faced a 1.8 percent decline, despite rising metal prices, due to weaker-than-expected demand recovery in China, the largest consumer. Conversely, oil and gas stocks rose by 1.5 percent, led by a 2.2 percent increase in Shell's shares as the company reported a first-quarter net profit surpassing analysts' forecasts.
Following the Fed's announcement, major Asian currencies strengthened, and regional bonds rallied. The South Korean won and Indonesian rupiah led the gains, with the rupiah reaching its highest level against the US dollar since June 10, 2022, appreciating by up to 0.8 percent to 14,570 per US dollar.
The change in tone from the Fed also had an impact on commodities. Gold, which surged to near all-time highs, experienced a slight pullback on Thursday, although analysts predict further gains for the safe-haven asset due to persistent economic risks. Spot gold remained steady at $2,038.19 per ounce as of 7:04 a.m. GMT, after briefly reaching $2,072.19, close to the record high of $2,072.49 in 2020. US gold futures rose by 0.5 percent to $2,047.70.
Yeap Jun Rong, a market analyst at IG, highlighted that with the conclusion of the Fed meeting, focus would shift to any contagion risks from the US banking sector, which may influence a cautious stance in the risk environment and potentially drive continued safe-haven flows into gold in the event of further disruptions.
While most base metals prices rose on Thursday due to a weaker dollar making them relatively cheaper for holders of other currencies, a weaker-than-expected demand recovery in China prevented a stronger rally in the sector.