European Stocks Decline as Traders Await US Data, ECB Decision

(Bloomberg) — European stocks fell ahead of a busy week, with investors awaiting US economic data while looking forward to Thursday’s European Central Bank decision.

The Stoxx Europe 600 dropped 0.3% at 8:15 a.m. in London, with energy and telecommunication stocks lagging. Among individual movers, Deutsche Telekom AG fell as Germany sold a €2.5 billion ($2.7 billion) stake in the company.

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The ECB is widely forecast to cut interest rates on Thursday, the first time it will have moved ahead of the Federal Reserve. These expectations boosted European stocks last month, along with a better-than-expected earnings season. Still, some economists reckon sticky inflation, rapid wage growth and surprisingly robust euro-zone output will constrain monetary loosening after this week’s cut.

Economic sentiment in Europe has been improving steadily this year, but nowhere near as fast as stock prices, creating a large gap. This could reflect mixed feelings from investors, torn between an overall cautious stance and the fear of missing out on the rally.

A typical boost from interest-rate cuts and an improving earnings outlook should drive European stocks higher into the year-end, Citigroup Inc. strategists led by Beata Manthey wrote in a note. It would be a longer-lasting tailwind for regional equities if rates settle at pre-global financial crisis levels, they said.

Florian Ielpo, head of macro research at Lombard Odier Asset Management, said the ECB’s outlook on growth and inflation could matter more for stocks from here, particularly if the central bank signals a resilient economy but stronger price pressures compared with the first quarter.

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In such an event, “the outcomes of this meeting might not stir significant market movements, rendering it a relatively uneventful episode,” he said.

This week is also busy on the US economic data front. Friday’s jobs report will provide fresh insight into the labor market, giving potential clues about the Fed’s monetary policy path.

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—With assistance from Michael Msika.

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