Europe close: Stocks pare gains after stronger US inflation data

(Sharecast News) - A upside surprise in US inflation caused a sell-off across Europe on Wednesday afternoon, with markets trimming earlier gains, but a late recovery helped keep stocks above water by the close of trade.

After briefly dropping into negative territory around the 1500 CEST mark, the Stoxx 600 managed to close 0.15% higher at 506.59. Equity indices continent-wide wobbled after the inflation print, coming off their earlier highs, to keep gains modest for the most part.

Meanwhile, Wall Street opened firmly in the red, with the Dow, S&P 500 and Nasdaq all dropping more than 1%.

Dampening sentiment was the US consumer price index, which showed that the annual rate of inflation picked up to 3.5% in March, from 3.2% in February and ahead of the 3.4% expected by the market. Even core inflation, which had been predicted to fall to 3.7%, held steady at 3.8%.

Danni Hewson, head of financial analysis at AJ Bell, said the data "sent market sentiment tumbling as it casts further doubt on what had been a well charted path to a pivot for the Federal Reserve".

She added: "Where once investors had seen at least three rate cuts this year with May's meeting looking like a real contender for when the switch would be flipped, there's now a sense the can is being kicked further and further into grass that keeps on growing."

Back in Europe, no major economic data was due for release, with eyes starting to turn towards Thursday's European Central Bank meeting, though no change in policy is expected.

"While [ECB chief Christine] Lagarde will likely continue to make a clear case for a June cut, she will likely come short of explicitly calling for one or give any concrete guidance about the potential pace of rate cuts," according to analysts at TD Securities.

UBS drops into the red

UBS shares dropped in late-afternoon trade after the Swiss government said banks would have to hike their capital levels to meet new requirements created to prevent lenders going the same way as Credit Suisse, which nearly collapsed in 2023 before being taken over by UBS.

Mining stocks in London were trading with losses on the news that Fitch Ratings has cut its outlook on China to 'negative' on the back of the country's increasingly uncertain economic prospects. Anglo American, Antofagasta and Glencore all fell.

Also lower in London were real estate stocks after rising bond yields - on the back of the strong US inflation reading - hit high-yielding property development and investment stocks. Barratt Developments, Taylor Wimpey and Safestore Holdings were notable fallers.

Budget airline easyJet was flying higher after concluding negotiations with the Unite union over cabin crew salaries, agreeing to a 20% increase in basic pay.

Philips dipped in Amsterdam after an earlier rise, after settling on a consent decree with the DOJ and FDA regarding its the sleep and respiratory care devices under the Respironics brand. The Dutch conglomerate said the agreement "provides clarity and a roadmap to [...] restore the Philips Respironics business", following a recall of respiratory devices in 2021.

UK retail giant Tesco rose 3% after its annual results showed statutory pre-tax profits were up 160% in 2023 as sales jumped 7.2% on the back of a growing market share. Chief executive Ken Murpphy noted that "inflationary pressures have lessened substantially".

Chocolate company Barry Callebaut jumped 10% in Zurich despite missing forecasts with a 40% drop in first-half profits, though revenues were 11% higher on the back of rising cocoa prices.