European shares drop as rate hike jitters weigh; Embracer slips

By Matteo Allievi and Shubham Batra

(Reuters) -European shares slumped on Thursday, as heightened concerns about an economic slowdown and further rate hikes globally dented risk sentiment, while shares of Embracer group slid after a discounted share issue.

The pan-European index dropped 1.2%, led by losses in travel and leisure and retail index, which fell 2.3% and 2.0%, respectively.

40 also declined 1.6%.

Embracer, the top loser on the STOXX, fell 13.8% after the gaming group raised 2 billion crowns ($182 million) in a share issue directed to institutional investors.

“The market had been thinking it was going to get only a 25 basis point hike in July, but now there’s a real fear that it could get at least two more, possibly three, before hawkish FOMC members are confident that inflation is finally heading lower,” said Stuart Cole, chief macro economist at Equiti Capital.

“Now the gap between the two main central banks is closer than two months ago as Fed has moved more towards the position of the European Central Bank (ECB).”

Fed minutes on Wednesday showed that a united central bank agreed to hold rates steady at the June meeting to buy time and assess need for further rate hikes, even as the vast bulk expected they would eventually need to tighten policy further.

Meanwhile, U.S. Treasury Secretary Janet Yellen’s first trip to China will be on investors’ radar as she is likely to focus on recalibrating ties between the world’s two largest economies after Beijing’s new restrictions on exports of some metals sparked tensions.

German industrial orders rose significantly more than expected in May, due to large scale orders of ships, spacecraft and military vehicles.

Investors will closely monitor euro zone’s retail sales print due at 0900 GMT, with numbers expected to tick higher by 0.2% in May compared with a no-growth phase in the prior month.

UK’s Currys dropped to a 20-year low, falling nearly 13%, as the British electricals retailer said it is not paying a final dividend after reporting a 38% fall in full year profit.

Comments from ECB policmaker Joachim Nagel, due later in the day, will also be watched closely for clues on the central bank’s monetary tightening path, along with slew of employment reports across the Atlantic to assess the strength of the U.S. labor market.