European stocks closed sharply lower on Thursday, impacted by disappointing economic data from the U.S. and a sell-off in bank stocks following the Bank of England's reduction of its key interest rates.
Poor eurozone PMI and unemployment data, coupled with disappointing earnings reports, also exerted downward pressure on the markets.
The Bank of England lowered its benchmark rate for the first time since the COVID-19 pandemic began. This was due to receding inflation and a persistently weak growth momentum. In a narrow decision, the Monetary Policy Committee, led by Governor Andrew Bailey, cut the bank rate by 0.25 percentage points to 5% from 5.25%, which had been the highest rate since early 2008.
Policymakers expect inflation to rise to around 2.75% in the second half of the year as declines in energy prices from the previous year fall out of the annual comparison. However, inflation is projected to drop back to 1.7% in two years and to 1.5% in three years.
The pan-European Stoxx 600 dropped 1.23%. The U.K.'s FTSE 100 fell 1.01%, while Germany's DAX and France's CAC declined by 2.3% and 2.14%, respectively. The Swiss market was closed in observance of National Day.
Other European markets, including those in Austria, Belgium, Finland, Greece, Iceland, the Netherlands, Norway, Poland, Portugal, Spain, and Sweden, also closed with losses ranging from sharp to moderate.
Greece, Iceland, and Russia ended modestly lower. Meanwhile, Turkiye saw gains, and Denmark ended flat.
In the UK market, NatWest Group plummeted more than 8%, HSBC Holdings declined by 6.5%, Standard Chartered fell nearly 6%, and Lloyds Banking Group dropped 5.7%. Barclays closed 4.7% down after reporting a drop in second-quarter profit.
Melrose Industries slumped 12.5%, and Schroders fell by 9.7%. Other notable decliners included Antofagasta, Prudential, EasyJet, Glencore, IMI, ICG, Beazley, IHG, Entain, Ashtead Group, and Weir Group, which all lost between 2.5% and 4.7%.
Conversely, Next surged nearly 8.5% after raising its annual guidance. Smith & Nephew gained about 6.8% on strong half-year results.
Rolls-Royce Holdings jumped 7% after the aerospace engineer upgraded its profit guidance and announced it would resume dividends.
Haleon, British American Tobacco, Kingfisher, Barratt Developments, Mondi, LondonMetric Property, and AstraZeneca saw gains of 1% to 2.5%.
In the German market, Deutsche Post dropped 6.25% following its second-quarter earnings report.
Commerzbank fell by 5.4%. Fresenius, Fresenius Medical Care, Hannover Rueck, Daimler Truck Holding, and Deutsche Bank lost between 3% and 4.5%.
BMW fell by about 3% after its auto unit reported slightly lower-than-expected profitability for the second quarter. Volkswagen declined nearly 4% following a drop in second-quarter operating profit due to higher costs.
Siemens Energy, Infineon, Munich RE, Mercedes-Benz, E.ON, Allianz, Adidas, HeidelbergCement, Continental, PUMA, SAP, BASF, and Beiersdorf ended lower by 1.7% to 3%.
On the flip side, Zalando climbed more than 3%, while Vonovia and Merck gained about 2.4% and 1.5%, respectively.
In France, Societe Generale plunged 9% after cutting its outlook for its French retail activities.
Safran, ArcelorMittal, Airbus, Schneider Electric, Saint Gobain, STMicroelectronics, L'Oreal, and BNP Paribas fell by 3% to 5%.
Shares of Veolia ended 3% lower after the company maintained its full-year outlook despite reporting a 10% increase in first-half earnings.
Other notable fallers included Teleperformance, Legrand, Renault, Kering, Accor, Vinci, Vivendi, Edenred, Bouygues, Air Liquide, Publicis Groupe, LVMH, Capgemini, and Stellantis, all of which declined sharply.
The eurozone manufacturing sector remained in contraction territory in July, according to today's survey. HCOB's final manufacturing PMI remained unchanged from June at 45.8, slightly higher than the preliminary estimate of 45.6.
Separate data from Eurostat showed a slight increase in the eurozone unemployment rate in June, rising to 6.5% from 6.4% in May, though unchanged from June 2023.
Meanwhile, the UK manufacturing sector's activity grew at an accelerated pace in July, driven by strong growth in output and new orders. The manufacturing PMI rose to 52.1 in July from 50.9 in June.
UK house prices increased for the third consecutive month in July, indicating stabilization in the housing market, according to data from Nationwide Building Society. House prices rose by 0.3% in July, following a 0.2% increase in June, exceeding forecasts of a 0.1% rise.
