Europe close: Stocks slip as central banks hold rates

18th Jun 2026 15:53

(Sharecast News) - European shares closed lower on Thursday as hawkish signals from the US Federal Reserve offset optimism over the signing of a memorandum of understanding between Washington and Tehran.

The pan-European Stoxx 600 fell 0.34% to 637.14.

Germany's DAX managed gains of 0.37% to 25,026.80, France's CAC 40 rose 0.44% to 8,467.98, and London's FTSE 100 dropped 1.04% to 10,399.70.

In commodities, Brent crude futures were last down 2.19% on ICE at $77.81 per barrel, while the NYMEX quote for West Texas Intermediate declined 2.5% to $74.87.

Russ Mould, investment director at AJ Bell, said: "Politics and economics are front and centre for markets in the UK and beyond."

"The US and Iran have signed an initial deal to end the war, causing oil prices to fall further," he added.

"Oil has now fallen by 30% in just over four weeks, wiping out much of the increases seen since the start of the war in late February."

US shares had closed lower overnight after new Federal Reserve chair Kevin Warsh held his first news conference and confirmed that interest-rate forecasts had been revised higher for the next three years.

The Fed's dot plot showed that nine of its 18 policymakers now expect at least one rate hike before the end of 2026, although Warsh abstained from submitting a projection.

In March, no Fed officials had expected a hike.

Neil Wilson, UK investor strategist at Saxo, said the Federal Reserve had held rates steady, but Warsh had "set out his stall" by signalling a tougher approach to inflation and an end to forward guidance.

He said the hawkish message from the dot plot had pushed front-end yields higher, lifted the dollar and weighed on stocks.

"The tone from Warsh was unambiguously inflation-busting," Wilson said, adding that the new chair had said "persistently high prices are a burden for the American people. But the recent past need not be prologue" and that the FOMC was "unambiguous and unanimous" in its commitment to price stability.

Mould said the market had been surprised by the extent of the Fed's hawkish shift.

"Even though the Federal Reserve wasn't expected to raise US interest rates at its meeting last night, nine of the 18 committee members predicted an interest rate hike this year, while just one said they expected a cut.

"That took the market by surprise and caused a wobble on Wall Street."

Meanwhile, US president Donald Trump signed a 14-point initial peace agreement with Tehran ahead of further talks, calling it a "major win" for the US despite making significant political and financial concessions to reopen the Strait of Hormuz.

The agreement includes the immediate lifting of the US naval blockade on Iranian ports, waivers allowing Iranian crude oil exports, the potential lifting of all international sanctions against Tehran, the unfreezing of Iranian assets worth billions and plans for a $300bn reconstruction fund for Iran, financed by regional partners in the Gulf.

However, Iran said it would begin charging fees for ships to pass through the Strait of Hormuz once the memorandum of understanding period expires, a situation that did not exist before the US and Israel began the war against Iran and Lebanon.

Wilson said Trump had warned that the US would "go back to dropping bombs" if he did not like the deal with Iran, although the agreement had now been signed by both sides.

He said oil prices had fallen as Washington and Tehran moved to reopen the Strait of Hormuz, with Brent breaching its 200-day moving average.

BoE among central banks standing pat

On the economic front, the Bank of England left interest rates unchanged, as widely expected.

The Monetary Policy Committee voted 7-2 to keep Bank Rate at 3.75%, with Megan Greene and chief economist Huw Pill voting for a hike to 4%.

The MPC acknowledged that global energy prices had fallen but said they remained high and volatile.

It warned that the impact of the energy shock on the UK economy remained uncertain and said inflation was still expected to rise later this year as higher energy costs pass through.

However, the committee also noted that the labour market was continuing to loosen and that signs of a weakening economy could contain inflationary pressures.

Wilson said the market had been slow to reprice for a more dovish BoE, "but it's getting there, as the reasons not to hike are stacking up".

He said Thursday's employment figures had added to the case for leaving rates unchanged "for the foreseeable future", with payrolls down 0.5% and wage growth slowing to its lowest level in five years.

"As stated before, we are seeing emergence of a stark divergence in monetary policy between the Fed and BoE, which has sent cable to its lowest since the start of April," he said.

Norges Bank also left interest rates unchanged, holding its policy rate at 4.25%, but signalled that another increase could be needed.

Governor Ida Wolden Bache said inflation was too high and that stronger-than-expected price pressures suggested a somewhat tighter policy stance may be required.

The Swiss National Bank kept its key policy rate at 0.0%, in line with expectations, citing a benign medium-term inflation outlook.

It noted that inflation had risen to 0.6% in May from 0.1% in February because of higher energy prices, but said inflationary pressures were virtually unchanged from its previous assessment.

ING said the SNB had struck a "relaxed" tone and expected policy rates to remain at 0% for at least the next two years.

In data, eurozone construction output edged higher in April, while March's growth was revised sharply higher.

Eurostat said production in construction rose 0.6% in April after a revised 1.7% increase in March.

Building construction fell 0.1%, while civil engineering and specialised construction activities both rose 0.8%.

In the UK, the unemployment rate unexpectedly eased.

The Office for National Statistics said unemployment was 4.9% in the three months to April, down 0.3 percentage points on the previous quarter but up 0.3 points on the year.

Average earnings rose 4.4%, or 3.4% excluding bonuses.

Payroll numbers continued to fall, however, while new recruits were at their lowest level in five years and the claimant count rose to 1.7m in May.

Edenred surges, Tesco in the red

In equity markets, Edenred surged 17.17% after French publication La Lettre reported that private equity firm BC Partners was considering taking control of the meal voucher provider.

The report said BC Partners first wanted to partner with a financial firm and had approached four funds, including Canada's PSP Investments, to form a consortium.

Tesco was 1.99% weaker after its latest update, as investors focused on slower sales growth and cautious commentary from management.

Reporting by Josh White for Sharecast.com.