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European Stocks Fall as Banking Sector Jitters Hit Sentiment

(Bloomberg) -- European equities eased on Wednesday as concerns over lenders’ exposure to commercial property troubles deepened and as central bank officials dampened hopes of early interest-rate cuts.

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The Stoxx 600 Index ended the session 0.2% lower, with banks, telecoms and personal care, drug and grocery stocks among the biggest laggards. The banking subindex slipped 0.9% amid signs that troubles in the US commercial property market were emerging in Europe. Deutsche Bank AG slid as much as 5.6% after German regulator BaFin said it is monitoring turmoil in commercial real estate.

Read More: European Bank Stocks Drop as Property Fears Re-Emerge

Autos were among the top performers, after earnings from US peer Ford Motor Co. beat expectations, signaling optimism for profits in 2024. Tech stocks also gained.

Barratt Developments Plc slumped after agreeing to buy rival Redrow Plc, while TotalEnergies SE slipped as it reported a drop in profit. Svenska Handelsbanken AB jumped on a higher-than-expected dividend and Carlsberg AS rallied after it increased its long-term outlook.

Investors hoping for speedy rate cuts were left disappointed after European Central Bank executive board member Isabel Schnabel said that the latest economic data and markets’ aggressive rate-cut bets mean the ECB should be patient. Federal Reserve officials, including Loretta Mester and Neel Kashkari, also urged caution.

Still, European stocks have eked out a positive start to the year, building on the end-2023 rally. Sentiment has also been lifted by bumper gains on big tech stocks in the US. The Stoxx 600 benchmark now stands about 1.8% off a fresh record high, partaking in a global rally across stock markets with the MSCI World Index hitting its highest level ever on Wednesday.

“The micro — with positive earnings for tech companies especially — is supporting equity markets against the message from central banks,” said Alfonso Benito, chief investment officer at Dunas Capital. “Markets are only wanting to focus on the positives. We remain very, very cautious on stocks as we see risks that aren’t priced in.”

For more on equity markets:

  • Europe’s Market Also Has Big Concentration Factor: Taking Stock

  • M&A Watch Europe: Barratt, Redrow, MorphoSys, Amundi, Holcim

  • Athens Airport, Theon to Test European IPO Appetite: ECM Watch

  • US Stock Futures Unchanged; Snap, Mercury Systems Fall

  • BP, Buyback Plenty: The London Rush

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--With assistance from Michael Msika and Kit Rees.

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