European shares fall as hot US inflation data rains on rate-cut hopes

PARIS: European shares ended lower on Thursday after a hotter-than-anticipated US inflation reading doused hopes of early interest rate cuts by major central banks across the world.

The pan-European STOXX 600 ended 0.8% lower after rising as much as 0.8% during the day, its third straight day of losses with banks at the forefront of the selloff, down 1.9%.

Earlier in the day, data showed US consumer prices increased more than expected in December, suggesting that it was probably too early for the Federal Reserve to start cutting interest rates.

“Today’s inflation print reinforces the idea that the market had gotten a little over-excited around the timing of the first rate cut,” Stefan Koopman, senior market economist at Rabobank, said.

“It suggests that the final stretch towards the 2% target requires more time on the part of the Federal Open Market Committee (FOMC).” Rate-sensitive real estate stocks dropped 1.4%, while utilities and financial services slipped 1.2% and 1.1%, respectively.

Investors bought back into fixed-income with euro zone bond yields slipping on the day.

On Thursday’s data front, Italian industrial output was much weaker than expected in November. Italian stocks ended 0.7% lower.

ECB policymaker and Bank of France head Francois Villeroy de Galhau reaffirmed the previous estimate for French economic growth of 0.9% for 2024. “France will not be in a recession in 2024,” he told France 2 television.

France’s CAC 40 was last down 0.5%, while Denmark’s OMX 20 ended 0.7% lower after hitting a fresh record high earlier in the day.

Croatian central bank chief Boris Vujcic said euro zone inflation is developing as expected which warranted patience with rate cuts.

Focus will now shift to the earnings season in the United States, with the likes of top lenders JPMorgan Chase & Co, Wells Fargo & Co and Bank of America reporting their quarterly results on Friday.

Among individual stocks, Rational AG rose 6.7% after the industrial kitchen retailer’s preliminary 2023 results beat market expectations.

British retailer Marks & Spencer reported a better-than-expected 8.1% rise in sales over the Christmas trading period. But its shares, which have doubled over the past year, fell 5.2%, with some traders pointing to profit taking.