European equities follow their US counterparts lower

• European indices follow their US counterparts lower
• FOMC minutes pose risk for equities
• UK food inflation eases

European markets are following the bearish precedent set by US equities yesterday, with Apple having led a wider big tech sell-off. While we have seen the S&P 500 enjoy a 14% gain in the last two months of 2023 alone, that extended move points towards a strong possibility that we could see some profit taking come into play before long. Questions remain over the likeliness of the 150-basis points worth of rate cuts expected by the markets currently, and thus there is a risk that the Federal Reserve members will seek to reign in those expectations somewhat.

Today’s FOMC minutes will provide one such opportunity for the disparity between market rate expectations and the Fed outlook to narrow, with traders keeping a close eye on the language behind a meeting that was widely considered to be highly dovish. With many Fed members emerging to reign in expectations following that meeting, there is a good chance that we see a somewhat less expansive view than that expressed by Jay Powell. After-all, the dot plot expectations signal a likely three rate cuts this year, bringing risk for equities given the current market pricing for six.

Today has seen good news on the inflation front in the UK, with the annual rate of grocery price inflation falling sharply from 9.1% to 6.7%. That marks the sharpest month-on-month decline in this metric since Kantar started tracking prices 16-years ago. With the Russia-Ukraine conflict having sparked a sharp surge in European food prices, we are finally seeing those pressures abate. This further helps the Bank of England’s cause, with the latest CPI figure of 3.9% bringing increased hope that we will soon see inflation return back to target this year.