European shares fall ahead of March inflation data

European shares fell on Wednesday, as investors scrutinised still-hot UK inflation and corporate earnings, while awaiting euro zone March inflation data for more clues on the European Central Bank’s monetary tightening path.

The pan-European STOXX 600 index (.STOXX) fell 0.2% but was still hovering around its 14-month highs.

Meanwhile, rate-sensitive real estate (.SX86P) and technology shares (.SX8P) were down 1.7% and 1.3% respectively on hawkish comments by ECB officials signalling more rate hikes, reported Reuters.

Foods and beverages index (.SX3P) limited the declines, rising 0.5%.

“The big story for the markets currently is the earnings season, where corporate profits are expected to show resilience in the first quarter,” said Joe Little, global chief strategist at HSBC Asset Management.

“But down the line, we expect a deceleration in profits and margins as we factor in recession in the second half of the year.”

Britain now has Western Europe’s highest rate of consumer price inflation, despite falling to 10.1% in March from February’s 10.4%.

London-listed blue chips (.FTSE) were down 0.3% following the release of the UK inflation data. Money markets are fully pricing in a 25 basis points hike by the Bank of England in May.

Investors will closely monitor euro zone inflation, due at 0900 GMT, and expected to rise 6.9% in March on a yearly basis from the same pace in February.

ECB’s chief economist on Tuesday backed a further interest rate increase at the ECB’s next meeting but said its size would depend on incoming data, especially a survey of euro zone banks.

Goldman Sachs raised its terminal rate forecast for the ECB to 3.75% from 3.5%, citing easing worries about the banking system, signs of cooling inflation and generally hawkish commentary from policymakers.

European equities suffered last month as the turmoil in the banking sector and uncertainty over interest rate hikes by the ECB kept the investor sentiment fragile, but the broader index has recovered in April with gains of over 2% so far.

ASML Holding NV (ASML.AS) fell 2.9% as demand slowdown overshadows Q1 beat of the key supplier to computer chip makers.

Heineken NV (HEIN.AS) rose 3.0% as it maintained its forecast for 2023 profit growth with the risk of slower economic expansion in the Asia-Pacific region offset by greater resilience among beer drinkers in Europe.

Worldline SA (WLN.PA) climbed 5.6% after it began exclusive talks with French bank Credit Agricole SA (CAGR.PA) to form a merchant services joint venture.