Worries over U.S. rate hikes, sanctions weigh on European shares

European shares fell from over six-week highs on Wednesday, as investors grappled with the twin worries of aggressive U.S. interest rate hikes potentially hurting growth and more Western sanctions on Russia further stoking inflation.

Breaking a three-day winning streak, the pan-European STOXX 600 index fell 0.8%, joining Wall Street and Asia stocks. Losses were broad-based with technology and China-sensitive luxury being the biggest drags.

U.S. Federal Reserve Governor Lael Brainard said on Tuesday she expected interest rate rises and a rapid balance sheet runoff to take U.S. monetary policy to a “more neutral position” later this year. Her comments sparked a selloff on Wall Street overnight, with Asian stocks also weakening.

“While investors have been expecting the Fed to do something about inflation, it is the likely pace of action that really worries the market. Tighten monetary policy too quickly and the economy could fall into recession,” said Russ Mould, investment director at AJ Bell.

“Fears about the strength of the economy in U.S. naturally led investors to worry about the state of other geographies.”

Raising worries about slowing growth, data showed German industrial orders fell more than expected in February on weaker demand from abroad as supply shortages, exploding energy prices and uncertainty linked to Ukraine war subdued manufacturing activity.

Calls for more tightening by the Fed ahead of minutes from its last policy meeting come as European Central Bank members voiced the need to curb stimulus to keep inflation expectations from rising beyond the central bank’s 2% target. The ECB’s next policy meeting is due next week.

Meanwhile, inflation worries came to fore as proposed EU sanctions on Russia could include a ban on buying coal and disallowing Russian ships to enter EU ports, with the bloc also considering a ban on oil imports.

Election nerves continued to grip investors, with French stocks falling 0.9% after marking their worst session in nearly a month on Tuesday.

President Emmanuel Macron would beat Marine Le Pen in France’s presidential election, leading the first round on April 10 and winning later on April 24, a poll showed, though Le Pen has gained ground in recent weeks.

“A phase of volatility is obviously not to be excluded between the two rounds if the gap between the candidates is small,” said Vincent Mortier, chief investment officer at Amundi.

“However, we remain convinced that pragmatism will prevail in the end and that this election will not be disruptive for the markets.”

Among individual stocks, Danish wind turbine maker Vestas fell 1.7% after it said it would withdraw from Russia, where the firm has two factories.