European equities experienced a noticeable decline on Monday, September 18, 2023, as investors remained cautious in anticipation of the monetary policy decisions from the Federal Reserve, the Bank of England (BoE), and the Bank of Japan (BoJ). This caution was reflected in the pan-European Stoxx 600, which fell by 1.13%, alongside declines in the UK’s FTSE 100, Germany’s DAX, France’s CAC 40, and Switzerland’s SMI.
Investors are particularly attentive to the BoE’s upcoming decision, with expectations set for a final rate hike to conclude its tightening cycle. This decision is influenced by record high wage growth and persistently high inflation, which have called for additional policy tightening. However, recent economic indicators suggest that past rate hikes have begun to dampen economic activity and that the UK economy has entered a mild recession.
On Tuesday, market analyst Shawn Hickman noted that central banks have made significant efforts to control inflation and that they would likely avoid cutting rates prematurely. He also mentioned that he does not expect the rates to increase significantly ahead of the FOMC meeting.
In contrast to the BoE’s anticipated rate hike, the Federal Reserve is expected to leave interest rates unchanged. However, traders will closely monitor the accompanying statement and projections for clues about future rate outlooks. Current data from CME Group’s (NASDAQ: CME) FedWatch Tool indicates a 99% chance that the Fed will maintain rates this week, with a more mixed outlook for November.
In addition to these anticipations, the Bundesbank reported on Monday that Germany’s economy is likely to contract slightly in Q3 due to a lack of positive contributions from private consumption.
The equity markets in Austria, Belgium, Denmark, Finland, Greece, Netherlands, Poland, Portugal, Russia, Spain, Sweden and Turkey also reported sharp to moderate losses. Meanwhile, Iceland and Norway saw marginal declines, while Ireland closed slightly higher.
In the UK market, companies such as Persimmon (LON: PSN), British Land Company, Entain (LON: ENT), St. James’s Place, ICP, TUI (LON: TUIT), Land Securities and Auto Trader Group reported losses between 3 to 4%. In the German market, MTU Aero Engines (OTC: MTUAY), Sartorius, Infineon (OTC: IFNNY), Porsche (ETR: P911_p), Merck, Adidas (OTC: ADDYY), HeidelbergCement (ETR: HEIG), Siemens Energy, Zalando, Vonovia, Volkswagen (ETR: VOWG_p), BASF, Deutsche Bank (ETR: DBKGn), Siemens Healthineers and Bayer (OTC: BAYRY) ended lower by 1.3 to 3.6%.
In Paris, Societe Generale (OTC: SCGLY) plummeted over 12% after its Chief Executive Slawomir Krupa adjusted profitability targets and predicted slower growth. The bank now aims for a return on tangible equity of between 9 and 10% by 2026, compared to a previous target of a 10% return by 2025.
