European stocks retreat from record highs, Deutsche Bank drags

European stocks slipped from record highs on Monday in subdued trading due to holidays in major markets, but optimism over a swift economic recovery put the benchmark index on course for its fourth month of gains.

The pan-European STOXX 600 index was down 0.1% in morning trade, with shares in Frankfurt falling 0.3% and Paris dipping 0.1%.

UK and US markets are closed for a holiday, keeping trading volumes muted across the board.

Among the top drags was Deutsche Bank, down 1.8% after the Wall Street Journal reported that the US Federal Reserve told the German lender it was failing to address persistent shortcomings in its anti-money-laundering controls.

Italian insurer Cattolica surged 12.9% after bigger rival Assicurazioni Generali said it would launch a 1.17 billion euros ($1.4 billion) buyout offer for the company.

Despite lingering worries about rising inflation, the STOXX 600 was on course to post a 2.6% rise in May as economies gradually reopened after lockdowns and central banks reiterated support to aid the recovery.

Dovish comments from European Central Bank (ECB) policymakers, including from President Christine Lagarde, who said it was too early to discuss slowing its pandemic emergency bond purchases (PEPP), helped support sentiment last week.

All eyes will be on euro zone inflation readings as well as the US jobs data this week as investors try to gauge the path of monetary policy ahead of the Federal Reserve and ECB meetings early in June.

"As ECB members have recently highlighted, the rise in inflation is likely to be temporary and due to a number of technical factors rather than to genuine strength in underlying demand," UniCredit analysts wrote in a note.

"We agree with this view and expect inflation in the euro area to peak in 4Q and then to ease back toward the 1.5% area (or around 1% for core inflation)."

Among other individual movers, Swedish online property listings firm Hemnet rose 3.6% after posting a 24% jump in quarterly sales, helped by demand for large apartments and houses.