European shares steady as rate jitters weigh, firm pound drags FTSE 100 down

"We think that the ECB will also hint at a likely 25 bps increase at the meeting in July and will emphasise that policy will remain restrictive for an extended period of time." Telecoms shed 1.1%, led by Vodafone's 5.5% drop after hitting a one-week high on Wednesday, as Reuters reported that the company and Hutchison are in the final stages of a merger agreement for their British operations.

European shares were subdued on Thursday as rate-sensitive technology shares and consumer staples slipped on expectations of further interest rate hikes by major central banks, while a sharp slide in Vodafone shares weighed on the telecoms sector. The pan-European STOXX 600 index was flat, with the rate-sensitive technology sector down 0.3%.

Britain's FTSE 100 led losses among regional peers, with export-heavy consumer staples such as Unilever and Reckitt Benckiser Group PLC under pressure as the pound rallied near 0.9% on expectations of more interest rate hikes by the Bank of England after a forecast showed UK inflation is set to remain elevated this year. The euro zone economy fell into a technical recession in the first quarter,

data showed. Fears that the U.S. Federal Reserve could opt for a hawkish stance in its meeting next week and expectations that the European Central Bank will continue to tighten its monetary policy weighed on stocks.

This sentiment comes after the Bank of Canada hiked its overnight rate to a 22-year high of 4.75% on Wednesday and markets and analysts immediately forecast yet another increase next month. Money market participants now see a 74.7% chance that the Fed will skip raising interest rates in its June meeting but will hike in July. For the ECB, traders see about a 96.3% chance of a 25 basis point rate hike next week.

"A 25 bps interest rate rise next week (by ECB), taking the deposit rate to 3.5%, looks like a done deal," said Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics, in a note. "We think that the ECB will also hint at a likely 25 bps increase at the meeting in July and will emphasise that policy will remain restrictive for an extended period of time."

Telecoms shed 1.1%, led by Vodafone's 5.5% drop after hitting a one-week high on Wednesday, as Reuters reported that the company and Hutchison are in the final stages of a merger agreement for their British operations. Vodafone shares traded ex-dividend on Thursday. Limiting losses on STOXX 600, miners and energy stocks gained 0.5% and 0.2%, respectively, tracking firm commodity prices.

German biotech company Evotec jumped 8.4% to the top of the STOXX 600 after Citigroup upgraded the stock to "buy" from "neutral", citing an attractive outlook. Sweden-based SBB dropped 11.7% after S&P downgraded the stock. Also weighing on the crisis-hit real estate firm, Swedish television reported Sweden's government will evaluate whether the sale of some properties owned by the company could have national security implications.

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