Market Turmoil: European and U.S. Stocks Plunge Amid Fed's Stance on Rate Cuts

European stocks experienced a significant drop as investors moved away from riskier assets following the U.S. Federal Reserve's signal of a slower pace of interest rate cuts. The STOXX 600 index fell, and technology stocks faced heavy selling pressure. U.S. stocks also saw major declines amid inflation concerns.

European markets faced a severe downturn on Thursday, with stocks on track for their steepest percentage drop in five weeks. This decline comes as investors distanced themselves from risk-laden assets after the U.S. Federal Reserve conveyed intentions for a decelerated rate cut approach next year. The STOXX 600 index dipped by 1% as of 0839 GMT, marking a red trend across all major sub-sectors.

Meanwhile, U.S. markets saw a sharp plunge on Wednesday, with key indexes marking their most significant daily dips in several months. The downturn followed the Fed's anticipated decision to cut rates, coupled with Chair Jerome Powell's remarks that further reductions would be contingent on curbing high inflation. Indications of a slight recovery emerged as futures forecast a mild rebound ahead of Wall Street's Thursday opening.

“The reaction on Wall Street highlights the Fed's tightrope walk as it tempers its easing outlook, necessitating a market recalibration of rate expectations,” commented Matt Britzman from Hargreaves Lansdown. Despite the turmoil, investors might interpret this phase as an opportunity for profit-taking after a robust market surge post-U.S. elections.

In response to the Fed's announcement, government bond yields in the U.S. and Europe rose, while oil and base metal prices dipped against a more formidable dollar. European technology stocks, sensitive to interest rate changes, experienced substantial selling pressure, sliding by 1.9% after significant losses among megacap stocks on Wall Street the previous night.

Chipmakers such as ASML, Infineon Technologies, and STMicroelectronics reported declines ranging from 3.0% to 3.6%. Additionally, volatility metrics for eurozone stocks climbed to a two-week high. Amidst widespread market selloff, the UK's leading FTSE 100 index dropped by 0.9% as the Bank of England prepared for its forthcoming rate decision, with market expectations of steady rates at 4.75% due to ongoing inflationary challenges.

Unicredit analysts predict the Monetary Policy Committee will likely emphasize a cautious strategy in easing policy constraints, potentially indicating a 25 basis points cut per quarter. They foresee a quicker rate cut trajectory in 2025, given the likely emerging strain in the private-sector labor market.

In a notable business development, SoftwareOne Holding reported an impressive 8.7% rise after announcing a strategic acquisition of Crayon Group, setting the valuation of its Norwegian competitor at approximately $1.34 billion. Consequently, Crayon’s shares saw a 6.5% decline.

(With inputs from agencies.)