European Stocks Close Sharply Lower On Fed's Hawkish Policy Outlook, Weak Commodity Prices

European stocks closed sharply lower on Friday as a hawkish policy outlook from the U.S. Federal Reserve and signs of policy tightening in China hurt sentiment.

Concerns about the Federal Reserve's outlook for monetary policy continued to weigh on the markets. The Fed's forecast for two interest rates hikes in 2023 has led to speculation that the central bank will soon start tapering its asset purchases.

Fed Chair Jerome Powell said after the policy meeting on Wednesday that the central bank would provide "advance notice" before making any changes to its asset purchases, but traders remain on edge about stocks losing a key layer of support.

Weak commodity prices contributed as well to the sell-off in the European markets.

The pan European Stoxx 600 tumbled 1.58%. The U.K.'s FTSE 100 shed 1.9%, Germany's DAX declined 1.78% and France's CAC 40 slid 1.46%. Switzerland's SMI lost 0.58%, snapping a 13-day winning streak.

Among other markets in Europe, Austria, Belgium, Czech Republic, Denmark, Finland, Greece, Ireland, Netherlands, Norway, Portugal, Russia, Spain, Sweden and Turkey closed with sharp to moderate losses.

Iceland and Poland bucked the trend.

Shares of oil companies declined sharply as crude oil prices fell for a second straight session on dollar strength.

In the UK market, Melrose Industries, Anglo American Plc, Mondi, Whitbread, Tesco, Royal Dutch Shell, Rolls-Royce Holdings, Barclays Group, ICP, Standard Chartered Group, Standard Life, Lloyds Banking and Legal & General lost 3 to 6%.

Tesco, Britain's biggest retailer, lost more 2% after it reported a sharp slowdown in underlying U.K. sales growth in its first quarter.

In France, BNP Paribas, Technip, STMicroElectronics, Credit Agricole, Renault, Societe Generale, Valeo, Total, Bouygues, Capgemini and Sodexo lost 2 to 5%.

In the German market, Henkel declined more than 5% and Infineon Technologies shed about 4.4%, while Covestro, Deutsche Bank, Thyssenkrupp and Daimler lost 3 to 4%.

Siemens, HeidelbergCement, Volkswagen, BMW, RWE, Allianz and BASF also declined sharply.

In economic news, the euro area current account surplus totaled EUR 23 billion in April versus EUR 18 billion surplus in the previous month, the European Central Bank reported.

The visible trade surplus widened to EUR 27 billion from EUR 24 billion, while the surplus on services trade held steady at EUR 8 billion.

Germany's producer prices increased to the highest level in twelve-and-a-half years in May, data from Destatis showed. Producer prices increased 7.2% year-on-year in May, faster than the 0.8% rise seen in April. Economists had forecast an annual growth of 6.4%/

This was the biggest growth since October 2008, when prices rose strongly before the financial crisis.

U.K. retail sales dropped unexpectedly in May, falling by 1.4% month-on-month, after a sharp 9.2% growth in April when retail restrictions were eased, data from the Office for National Statistics revealed. Economists had expected retail sales to increase by 1.6% in May.

On a yearly basis, the retail sales volume growth moderated to 24.6% in May from 42.4% a month ago. This was also slower than the expected expansion of 29%.

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