UKX FTSE 100 Index

By Carla Mozee, MarketWatch

European stocks dropped to their lowest in three weeks Thursday, struggling after data showed business activity in the eurozone is at its slowest pace of expansion in more than a year.

Euro strength also played a part in cutting down equities as the U.S. dollar was dragged down in the wake of the Federal Reserve's policy statement. Next up for the regional market will be the Bank of England's policy decision.

How markets are moving

The Stoxx Europe 600 index fell 0.8% to 371.51. No sector traded higher and the telecom group fared the worst.

France's CAC 40 index gave up 0.9% to 5,190.05, and Germany's DAX 30 slid 1% to 12,188.92.

The U.K.'s FTSE 100 index shed 0.5% at 7,004.45 and opened up below the 7,000 mark for the first time since December 2016.

The euro bought $1.2326, down from $1.2338 late Wednesday in New York, pulling back from an intraday high of $1.2369.

Read:Germany's DAX forms 'death cross' chart pattern (http://www.marketwatch.com/story/ach-du-meine-gute-germanys-dax-forms-death-cross-chart-pattern-2018-03-21)

What's driving markets

European stocks overall were pushing toward their lowest since March 3, according to FactSet data. Equities were under pressure as data firm IHS Markit's closely watched readings on business activity in the eurozone fell short of expectations.

Separately, German business sentiment slightly dampened in March, with think-tank Ifo saying its survey indicated the threat of protectionism in global trade is darkening sentiment in Europe's largest economy.

As trading got underway, the euro gained against the U.S. dollar, but has since retreated following the Markit and IFO reports. Euro strength can pull down shares of European exporters on the prospect that a higher value of the euro could hurt revenue and earnings made overseas by those companies.

The dollar fell against most major currencies after the Fed signaled three interest rate increases in 2018, disappointing investors hoping for a signal of four hikes after upbeat inflation and labor data. The U.S. central bank did raise its benchmark fed funds rate as expected (http://www.marketwatch.com/story/fed-lifts-rates-in-powells-first-meeting-says-outlook-has-strengthened-2018-03-21) on Wednesday. The Fed's monetary policy tends to drive financial markets globally, as many companies do business in the word's largest economy and it can lift borrowing rates for them.

   U.S. stock futures     were dropping on Thursday. 

Investors will now turn their focus to the Bank of England's monetary policy statement, due at 12 p.m. London time, or 8 a.m. Eastern Time. The U.K. central bank isn't expected to make any significant move, but policy makers will be watched for signs they will raise interest rates in May. A reading on British retail sales in February that arrived ahead of the BOE's statement came in slightly better than anticipated.

What strategists are saying

"U.S. futures are coming under pressure once again ahead of the open on Thursday, as investors continue to display an anxiety about the path of interest rates against a backdrop of escalating trade conflicts," said Craig Erlam, Oanda's senior market analyst, in a note.

"On top of that, Donald Trump seems intent on starting trade wars, most notably with China, which could trigger a wave of protectionism and drive up prices in the US. and likely weigh on the growth momentum. How the central bank deals with this will be very interesting given the already fast pace of hikes," Erlam said.

"Amid the healthy acceleration in nominal wages and real GDP growth above trend, we upgrade our BOE outlook to four 25 basis points hikes over the next two years, up from three before, with two hikes in 2018 and now two in 2019 (up from one)," said Kallum Pickering, senior U.K. economist at Berenberg, in a note.

"This would take the bank rate to 1.5% by the end of 2019. We look for the next 25 [basis points] hike in May 2018. With its negative real rate and large balance sheet, the BoE will remain accommodative well into the medium term," he said.

Stock movers

Reckitt Benckiser Group PLC (RB.LN) shares surged 5% after the consumer goods company said it's ending talks about its potential purchase of Pfizer Inc.'s (http://www.marketwatch.com/story/reckitt-benckiser-ends-talks-to-buy-pfizer-unit-2018-03-22-44851030)(PFE) consumer health-care business. Reckitt Benckiser said it was looking to buy just part of the business, but that goal couldn't be met.

Ted Baker PLC (TED.LN) slid 7.8% after the luxury fashion retailer warned that trading conditions will remain challenging (http://www.marketwatch.com/story/ted-baker-2018-profit-up-but-warns-on-challenges-2018-03-22) in the markets in which it operates.

IG Group Holdings PLC (IGG.LN) climbed 4.2%, with the online trading platform posting a 30% rise in third-quarter revenue to GBP152.9 million pounds ($215.0 million), bolstered by increased client numbers and cryptocurrency trading (http://www.marketwatch.com/story/ig-revenue-hits-record-boosted-by-crypto-trading-2018-03-22).

United Internet AG (UTDI.XE) dropped 8.1% following a disappointing 2017 earnings report.

Halma PLC (HLMA.LN) fell 3.5% as safety, health and environmental technology group said its first-half foreign-exchange benefits reversed in the second half. It also forecast adjusted pretax profit for fiscal 2018 to be in line with market expectations (http://www.marketwatch.com/story/halma-sees-2018-profit-in-line-with-forecasts-2018-03-22).

Economic data

IHS Markit said its flash eurozone composite PMI was 55.3, an 14-month low. That was below the 56.8 consensus estimate from a FactSet survey of analysts.

The eurozone's current-account surplus -- which measures the flow of goods, services and investments -- rose in January to EUR37.6 billion (http://www.marketwatch.com/story/eurozone-current-account-surplus-rises-in-january-2018-03-22), the highest level in four months, according to European Central Bank data.

U.K. retail sales grew by 0.8% (http://www.marketwatch.com/story/uk-retail-sales-rebound-in-february-2018-03-22) on month in February, twice the pace seen in a Wall Street Journal survey of analysts.

Check out:Brexit hard-liners fling fish into River Thames in bizarre protest (http://www.marketwatch.com/story/brexit-hard-liners-fling-fish-into-river-thames-in-bizarre-protest-2018-03-21)

(END) Dow Jones Newswires

March 22, 2018 06:45 ET (10:45 GMT)

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