European markets fall as investors react to Fed decision; Stoxx 600 down 1%

LONDON — European stocks fell sharply on Thursday as global markets react badly to the latest monetary policy decision from the U.S. Federal Reserve.

The pan-European Stoxx 600 dropped 1.2% in early trade, with travel and leisure stocks shedding 2.3% to lead losses as all sectors and major bourses slid into negative territory.

Global markets are reacting badly to the Federal Reserve’s indication on Wednesday that it could soon raise interest rates for the first time in more than three years.

The Fed’s policymaking group said a quarter-percentage point increase to its benchmark short-term borrowing rate is likely forthcoming. It would be the first increase since December 2018.

The post-meeting statement from the Federal Open Market Committee did not provide a specific time for when the increase will come, though indications are that it could happen as soon as the March meeting.  The statement comes in response to inflation running at its hottest level in nearly 40 years.

U.S. stocks initially rallied Wednesday even after the Federal Reserve pointed to an interest rate hike coming soon but overnight sentiment has changed. U.S. stock futures fell Thursday morning, indicating a sharply lower open on Wall Street.

Asia-Pacific markets fell across the board on Thursday overnight. Japan’s Nikkei 225 fell 3.3% while the Topix was down 2.3%. Over in South Korea, the benchmark Kospi dropped 3.13% and in Hong Kong, the Hang Seng index and the Hang Seng Tech index dropped 2.56% and 4.61%, respectively. Chinese mainland shares also declined.

Earnings in Europe came from Deutsche Bank on Thursday, as well as Unicredit, LVMH, SAP, Banco Sabadell, easyJet, Diageo and STMicroelectronics. Renault provided a strategic update on the Nissan/Mitsubishi alliance.

Deutsche Bank defied market expectations to post a profit for the fourth quarter of 2021, as investment bank revenues rose.

The German lender said profit attributable to shareholders came in at 145 million euro ($162.7 million) for the final three months of the year — a sixth consecutive quarter of profit and almost triple its profit for the same period in 2020.

On the data front, Germany’s GfK consumer sentiment figures are due Thursday.

— CNBC’s Jeff Cox, Tanaya Macheel and Abigail Ng contributed reporting to this market report.