Europe stocks flat as rate cut expectations fade
written by Bella Palmer
The tech index gained 1.1%, with semiconductor stocks including ASML Infineon and ASM up in the range of 1% to 2.6% after Nvidia forecast quarterly revenue above estimates
European stocks closed flat on Thursday as signs of improving economic activity prompted investors to pare back expectations for interest rate cuts this year and tempered optimism around strong forecasts from AI firm Nvidia.
The pan-European STOXX 600 index came off session highs.
The tech index gained 1.1%, with semiconductor stocks including ASML Infineon and ASM up in the range of 1% to 2.6% after Nvidia forecast quarterly revenue above estimates. It announced a stock split and raised its quarterly dividend by 150% on a post-split basis.
Speaking on the European tech performance on the day, Mark Preskett, senior investment consultant and portfolio manager at Morningstar said, "these are key players in the semiconductor production and equipment cycle and it looks like the picks and shovels approach of investing is bearing fruit."
A surge in technology stocks around the prospects for AI and hopes of imminent interest rate cuts by the ECB had boosted the STOXX index since late 2023, and it is trading just short of its all-time peak.
However, risky assets came under pressure as yields on European bonds rose following a preliminary survey which showed euro zone business activity expanded at its fastest pace in a year in May.
Separately, closely watched negotiated pay growth rose marginally in the first quarter, bolstering the case for caution in cutting interest rates from record peaks.
Traders are pricing in rate cuts of 58 bps by the end of this year, compared with 67 basis points on Wednesday.
Wage inflation is a lagging indicator. We are seeing quite a lot of volatility around the data, but in aggregate inflation surprises are relatively muted, Preskett said.
Rate-sensitive sectors like utilities and real estate were the biggest laggards, with Britain's National Grid sliding almost 11% after it announced plans to raise around £7 billion ($8.9 billion) through a fully underwritten rights issue.
UK's FTSE 100 closed 0.4% lower after Prime Minister Rishi Sunak on Wednesday called a general election for July 4.
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