(Bloomberg) -- European stocks trimmed earlier gains after underlying US inflation unexpectedly picked up in August, undercutting the chances of an outsize Federal Reserve interest-rate cut next week.
The Stoxx Europe 600 Index was flat by the close in London, paring earlier gains of as much as 0.5%. The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July and 3.2% from a year ago, Bureau of Labor Statistics figures showed Wednesday.
“This data somewhat dents expectations on a 50-basis-points rate cut next week,” said Amelie Derambure, senior multi-asset portfolio manager at Amundi in Paris. “The big picture, however, is today’s data doesn’t change the direction of travel, which is good.”
Rates-sensitive stocks, like real estate, lagged. Retailers advanced after Zara-owner Inditex SA reported that sales were rising at the start of the third quarter. Meanwhile, Commerzbank AG rallied after UniCredit SpA built a 9% stake and said it plans to enter talks with the lender.
Rentokil Initial Plc was among the worst performers, plunging as much as 21%, after the pest control business issued a surprise downgrade to its growth expectations in North America.
Europe’s benchmark index has stumbled this month after an August rebound as concerns about global growth weighed on stocks linked to the economic cycle and commodities such as oil. The European Central Bank is expected to cut rates at its meeting on Thursday for a second time this cycle as the region’s economy struggles to maintain growth momentum.
Investors were also monitoring developments in the US presidential race. Democratic candidate Kamala Harris and Republican nominee Donald Trump sparred through their first debate on Tuesday, with the former president often on the defensive over abortion rights, the Jan. 6 insurrection and on foreign policy.
“What you see across markets makes sense with the idea that Harris won the debate, especially with the endorsement of Taylor Swift,” said Alexandre Baradez, chief market analyst at IG in Paris.
Investors expect a Trump administration to be more prone to fueling inflation through tax cuts and tariffs on imported goods, while a Harris presidency would be more favorable to US traditional partners, such as the European Union, Baradez said.
For more on equity markets:
- Confidence in the Bull Market Has Been Eroded: Taking Stock
- M&A Watch Europe: Sampo’s Deal; Unicredit Buys Commerzbank Stake
- Foreign Bids for UK Firms as Centamin Gets Offer: ECM Watch
- US Stock Futures Fall; Cantaloupe Inc Falls
- A Literal Gold Mine: The London Rush
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--With assistance from Brandon Harden.
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