European stocks and crude oil prices slumped Thursday, while perceived safe-haven assets such as the dollar and German Bunds rallied as investors digested the decidedly more hawkish tone of the latest Federal Open Market Committee minutes and a series of disappointing euro-zone data.
The FOMC minutes showed officials last month were worried that the central bank's easy-money policies could lead to instability in financial markets and may be difficult to pull back in the future. Some officials said the central bank should change the pace of its asset purchases, while others argued that any easing may need to remain in place until the job market improves substantially.
Paul Ashworth at Capital Economics said the minutes "suggest that rising fears over the potential costs from further quantitative easing could prompt Fed officials to reduce or even halt the central bank's monthly asset purchases sooner than most market participants had been expecting."
He added: "As it stands now, the Fed is more likely to halt QE3 in the second half of this year rather than the first half of 2014, although a re-emergence of the euro-zone crisis later this year could put paid to the central bank's current plans."
In currency markets, the pound took the biggest beating after the release of the minutes, briefly falling to its lowest level against the dollar since July 2010.
The euro came under further pressure against the greenback following the release of disappointing German PMI surveys for February, with both the manufacturing and services indexes falling short of expectations. The single currency slid to a fresh six-week low against the dollar after the data came out, while Bunds extended gains. The same data for France and the euro zone as a whole also missed expectations.
"Today's figures are a reality check: the improvement in Europe has until now been a financial markets story, while the real economy remains in the doldrums," said ING. "More needs to happen to put the euro zone on a sustainable recovery path."
Crude oil prices fell as the greenback's rally diminished the comparative appeal of dollar-denominated resources. Still, the gold price recovered a little Thursday following steep declines in the previous session.
In equity markets, basic resources suffered the heaviest losses, with the Stoxx Europe 600 index for the sector down 2.2%. Any rise in the dollar makes commodities priced in the greenback more expensive to investors holding other currencies.
Among individual stocks, shares in French insurer AXA fell after the company reported a drop in full-year net profit and said it would implement additional cost-cutting measures.
French retailer Casino Guichard-Perrachon slipped after it posted a slight drop in underlying net profit for 2012.
Swiss Re bucked the trend, however, gaining after the company reported a 62% increase in full-year net income and said it was well positioned in 2013 despite the challenging outlook in developed economies.
In London, BAE Systems was also on the front foot after the company announced a GBP1 billion share buyback with its full-year results.
Write to Michele Maatouk at [email protected]
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