European shares inch lower ahead of ECB meeting, carmakers drag

European shares pulled back slightly on Thursday after a strong rally this week, with investors focussed on a European Central Bank meeting where policymakers are expected to provide more aid for the battered euro zone economy.

The pan-European STOXX 600 index slipped 0.4pc, but held near its early March highs, while eurozone stocks were also down 0.4pc.

Automakers and banks led the declines, falling 2.3pc and 1.7pc, respectively.

Equity markets have bounced strongly this week, with Wall Street's tech-heavy Nasdaq nearing record levels as signs of recovery from a coronavirus-forced recession, optimism over a COVID-19 vaccine and hopes of more stimulus boosted risk appetite.

Investors expect the ECB to upsize bond purchases by 500 billion euros ($560.25 billion), but the only question is whether it will act on Thursday or hold out until July as a deal on European Union-wide fiscal support strengthens the case for patience.

The bank delivers its policy decision at 1145 GMT and President Christine Lagarde holds a news conference at 1230 GMT.

"Equity markets are in a mild phase of consolidation ahead of the ECB meeting and later on the Fed, though it is very mild suggesting optimism," Sebastien Galy, macro strategist at Nordea Asset Management, wrote in a morning note.

"We expect a bit of volatility around the announcement but a positive development for credit should feed into the European stocks especially financials for the periphery."

Euro zone banks were down 1.7pc after the broader market recovery pulled the index up nearly 30pc from its record low.

Meanwhile, Germany's coalition parties agreed a 130-billion-euros stimulus package to speed up a recovery from the crisis on Wednesday, but shares in Daimler, BMW and Volkswagen slid between 2pc and 4.2pc as the packaged favoured electric cars.

Germany also unveiled a staggered tax on vehicles emitting large amounts of carbon dioxide (CO2), hitting sports utility vehicles.

Shares of car parts suppliers such as Continental and Valeo were down 1.7pc and 2pc.

French spirits company Remy Cointreau jumped 6.4pc after it predicted a strong recovery in the second half, driven by China and the United States.

German sportswear firm Adidas gained 1.3pc as it said sales had returned to growth in greater China faster than it had expected after the coronavirus lockdown.