By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- U.K. stocks led European markets lower
on Wednesday, as investors worried that the Bank of England will
hike rates sooner than previously expected after the central bank
in its quarterly inflation report sounded more optimistic about the
labor market.
Markets also keyed off weakness from the Asian session, where
disappointment with the four-day Chinese Plenum sent stocks
lower.
The Stoxx Europe 600 index dropped 0.6% to close at 319.82,
building on a 0.6% loss from Tuesday.
"With the recent weakness expected given the strong run we have
seen in Europe, we maintain that this represents a buying
opportunity as the market still is looking to move higher into the
year-end. Investors, with the current volatility, are now looking
to trim positions quicker than they have in recent months, but we
again remain confident of higher equity market levels over the
coming weeks," said Atif Latif, director of trading at Guardian
Stockbrokers, in emailed comments.
"Asset allocation towards equity inflow remains strong led by
earnings upgrades," he added.
Among biggest decliners in Europe, the U.K.'s FTSE 100 index
slid 1.4% to 6,630.00 after the Bank of England said the
unemployment rate is more likely than not to drop to the crucial
threshold of 7% by the third quarter of 2015, fueling fears the BOE
will hike rates sooner than previously expected. The forecasts are
based on market expectations that interest rates will rise in
mid-2015, which would dampen growth in 2014 and 2015, the bank
said.
The 7% threshold has become a key level for financial markets
ever since the BOE released its August Inflation Report. That's
when the bank laid out its forward-guidance framework and vowed to
keep interest rates at a record low of 0.5%, at least until the
joblessness rate falls to that level.
At the time, the central bank predicted unemployment would
remain above 7% until 2016, but after recent upbeat data, markets
started to price in a rate hike earlier than that.
Also out on Wednesday, the Office for National Statistics said
the U.K. jobless rate fell to 7.6% between July and September, down
from 7.7% in August. The pound (GBPUSD) traded at $1.6038, up from
$1.5902 on Tuesday.
U.K. banks were among major decliners. Barclays PLC (BCS) lost
2.8%, HSBC Holdings PLC (HBC) fell 1.9%, and Lloyds Banking Group
PLC (LYG) dropped 1.5%.
Banks were also on the decline elsewhere, with shares of
UniCredit SpA down 4.5% in Milan, Commerzbank AG 2.4% lower in
Frankfurt and Credit Agricole SA off 1.2% in Paris.
The broader European markets looked to Asia, where stocks
declined after China's leaders failed to provide a clear direction
on policy for the next decade at their four-day Plenum.
"What seems to be lacking was any real guidance on the outlook,
but [they] did say that economic reforms will continue but details
on more policy shifts were not forthcoming," Latif said.
U.S. stock also traded lower.
On the data front in Europe, Eurostat said industrial production
in the euro zone fell 0.5% in September, partly reversing a 1% rise
in August and missing analyst expectations.
Among country-specific indexes in Europe, Germany's DAX 30 index
dropped 0.2% to 9,054.83 and France's CAC 40 index fell 0.6% to
4,239.94.
ICAP PLC rallied 4.1% after the company reported a 6% rise in
first-half operating profit.
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