Europe's STOXX 600 ends flat as rate worries offset AI cheer

By Sruthi Shankar and Johann M Cherian

(Reuters) -European stocks closed flat on Thursday as signs of improving economic activity prompted investors to scale back expectations for interest rate cuts this year and tempered optimism around strong forecasts from AI darling Nvidia.

The pan-European STOXX 600 index came off session highs to close not far from unchanged.

The tech index rose 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, 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 artificial intelligence and hopes of imminent interest rate reductions by the European Central Bank had boosted the STOXX index since late 2023, and it is trading just shy of its all-time high.

However, risky assets came under pressure as yields on European bonds rose after a preliminary survey showed euro zone business activity expanded at its fastest pace in a year in May.

Separately, closely watched negotiated pay growth picked up slightly in the first quarter, bolstering the case for caution in cutting interest rates from record highs. [GVD/EUR]

Traders are pricing in rate cuts of 58 basis points (bps) by the end of 2024, compared with 67 bps on Wednesday.

"Wage inflation is a lagging indicator ... we're seeing quite a lot of volatility around the data, but in aggregate inflation surprises are relatively muted," Preskett added.

Rate-sensitive sectors such as utilities and real estate were the biggest laggards, with Britain's National Grid tumbling nearly 11% after it announced plans to raise about 7 billion pounds ($8.9 billion) through a fully underwritten rights issue.

UK's FTSE 100 ended 0.4% lower after Prime Minister Rishi Sunak on Wednesday called a general election for July 4. [.L]

Shares of Embracer slid 8.7% after the Swedish games developer said its finance chief would step down for personal reasons, and also reported fourth-quarter operating profit in line with market expectations.

Swiss bank Julius Baer rose 3.2% as its assets under management rose 10% to 471 billion Swiss francs ($515 billion) in the first four months of the year.

Ticketing firm CTS Eventim reported a 36% jump in first quarter adjusted core profit, boosted by rising demand for music and sports events and online ticket sales, sending its shares up 4.8%.

(Reporting by Sruthi Shankar and Johann M Cherian in Bengaluru; Editing by Sherry Jacob-Phillips, Eileen Soreng and Chris Reese)