European Stocks Slip Amid Inflation Worries and Interest Rate Speculations

European stocks saw losses on Friday, poised for a weekly decline as persistent U.S. inflation and a rebounding euro zone economy dampened hopes for multiple interest rate cuts. The pan-European STOXX 600 index fell by 0.5% with tech shares leading the descent.

European stocks lost ground on Friday, putting them on course for weekly declines, as signs of persistent U.S. price pressures and a recovering euro zone economy dashed hopes of several interest rate cuts from major central banks this year.

The pan-European STOXX 600 index dipped 0.5%, with rate-sensitive tech stocks retreating after Thursday's big gains. The benchmark was set for a weekly drop of 0.8%. U.S. stocks closed sharply lower on Thursday as an initial euphoria following upbeat outlook from chip giant Nvidia faded after economic data showed inflation was still a concern, potentially delaying any Federal Reserve rate cuts.

"For the Fed, a cut in June has been priced out for a while, but now even September looks quite questionable," said Joost van Leenders, senior investment strategist at Van Lanschot Kempen. "We still think that (a rate cut) is possible in September and two or three for the whole year. But what the data basically shows is that it's a very fine line for the Fed to get that soft landing."

Traders are currently pricing in rate cuts of 37 basis points (bps) from the Fed by the end of this year, as per the LSEG's rate probabilities app, and 57 bps of cuts from the European Central Bank. The odds have fallen since the start of the year. The German two-year bond yield hit its highest in six months on Thursday after a survey showed euro zone business activity expanded at its fastest pace in a year this month. It traded just below those levels on Friday.

"When you look at Europe, the economy is improving a little bit but not enough to really regenerate inflation. The outlook is a bit more straightforward for those rate cuts," van Leenders said. Europe's technology shares took the biggest hit, down 0.9%, followed by utilities and banks.

Shares of Renault rose 3.7% after the French carmaker announced a share buyback plan and UBS upgraded the stock to "neutral" from "sell". Britain's National Grid rebounded about 9% after Thursday's more than 10% plunge when it announced plans to raise about 7 billion pounds ($8.9 billion).

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