European stocks slip and U.S. equity futures pause as investors continue to absorb hawkish Fed turn

U.S. equity futures ES00, -0.00% YM00, -0.01% indicated a flat start for Wall Street, though Nasdaq-100 futures NQ00, +0.18% were slightly higher. On Thursday, the Dow Jones Industrial Average DJIA, -0.62% dropped and the Nasdaq Composite COMP, +0.87% gained as investors switched out of reflation trades in favor of tech names.

The Fed was viewed as taking a hawkish turn on Wednesday after its summary of economic projections showed two interest rate increases in 2023, and that it has begun talking about when to slow the rate of bond purchases.

“Logically, in an environment where the pace for interest-rate increases was brought forth, someone would have expected Nasdaq to underperform notably, as the value of high-growth tech stocks is highly affected by changes in interest rates,” said Charalambos Pissouros, senior market analyst at JFD Group, in a note to clients.

“Higher interest rates mean lower present values for such firms. Nonetheless, it seems that investors rushed into adding such stocks to their portfolios, perhaps to take advantage of the limited time left for low interest rates,” said Pissouros.

Also on Thursday, the dollar soared and commodity prices tumbled, though that action seemed to be calming down on Friday, with a bounce for hard-hit gold GCQ21, +1.00%. Tumbling bond yields was another reaction. The yield on the 10-year Treasury  TMUBMUSD10Y, 1.489%  was steady at 1.508%. The yield saw its sharpest slide since June 4 between Wednesday and Thursday.

As reflation trades unwound, bank stocks came under pressure, with HSBC HSBC, -1.04% HSBA, -0.47% down 0.4% and BNP Paribas BNP, -2.33% slumping 2.3%. Energy stocks fell as TotalEnergies TTE, -1.94% TTE, -2.06% and BP BP, -1.65% BP, -2.69% each lost close to 1%, while Royal Dutch Shell RDSB, -2.26% was 1.3% down.

On the data front, U.K. retail sales fell 1.4% in May, driven by decreases at food stores and on the heels of a sharp rise in the previous month, the Office for National Statistics said Friday. Economists polled by The Wall Street Journal expected retail sales to increase 1.6%.

Shares of Tesco TSCO, -2.23% fell more than 2%, after the British grocer reported a 1% rise in retail sales 1% on the year on a comparable basis and said that its profit outlook for the full year remains unchanged.

“Tesco’s first quarter numbers look sluggish, but that’s because they’re lapping the unprecedented demand triggered by the pandemic this time last year,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, in a note to clients.

Shares of Kerry Group KRZ, +1.55% surged 3% after the Ireland based food company said late Thursday that it will sell its consumer foods’ meats and meals business in the U.K. and Ireland to Pilgrim’s Pride PPC, -1.73% for 819 million euros ($975.1 million).