European shares retreat as markets mull hawkish US Federal Reserve

By Utkarsh Hathi, Johann M Cherian and Shashwat Chauhan

European shares slipped on Thursday as investors increased bets on a U.S. Federal Reserve rate hike later this year after policymakers struck a hawkish tone, though easing oil prices offered some relief on inflation.

The pan-European STOXX 600 index closed 0.3% lower, snapping a five-day winning streak. Regional bourses were mixed, with France and Germany posting gains while Italy and Spain declined.

Britain's FTSE 100 ended the day 1% lower as losses in heavyweight energy and healthcare stocks weighed.

The Bank of England kept interest rates on hold at 3.75% in June, judging it premature to raise rates given uncertainty about inflation pressures.

Across Europe, oil and gas shares eased 1.5% as oil prices fell to their lowest level since the first trading day of the Iran war. U.S. President Donald Trump signed a deal with Iran to end the war that has disrupted global energy supplies.

The interim pact has brought relief for markets, with energy-price-sensitive travel and leisure shares rising 0.8% on Thursday. However, that relief ran short in the face of monetary policy uncertainty.

NEW FED CHAIRMAN

In the U.S., the Fed held rates steady on Wednesday, but nine policymakers projected one rate hike this year. In an early sign of new Fed Chairman Kevin Warsh's influence, the central bank's statement removed guidance about future rate moves.

"Transitions like this are unsettling for markets. Toss in economic and political volatility, and you get a combination that will confront, confound, confuse, and upset Warsh's plans to pull the Fed into his promised land," said Steven Blitz, chief U.S. economist at GlobalData.TS Lombard.

The European Central Bank raised borrowing costs last week and traders anticipate another 25-basis-point rate hike by year-end, according to LSEG-compiled data.

Mining shares lost 3.1% and were the biggest decliners among the major STOXX subsectors as commodities came under pressure against a firmer dollar.

Automakers were also at the bottom, with Mercedes-Benz, Volkswagen and Stellantis down between 2.8% and 4.6%. BMW dropped 4% after sliding 8.3% in the last session after issuing a shock profit warning.

European IT services firms dropped sharply after Accenture cut its full-year guidance. Capgemini hit a six-year low to fall 8.9% while Cancom, Atos, Reply fell between 2% and 6.9%.

Edenred jumped 17.2% as the French voucher company confirmed it had been approached by investment funds, following a media report about possible takeover interest from investment firm BC Partners.

(Reporting by Utkarsh Hathi, Johann M Cherian and Shashwat Chauhan in Bengaluru; Editing by Harikrishnan Nair, Nivedita Bhattacharjee, Rod Nickel)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 18, 2026 at 9:55 AM.