European Stocks Slip Amid Fed's Cautious Stance and ECB Rate Speculations

European stocks declined on Tuesday, influenced by cautious signals from U.S. Fed officials regarding potential rate cuts. The pan-European STOXX 600 slipped 0.3%, led by banking and utility sectors. Market focus shifts to upcoming Fed minutes and Nvidia's earnings. ECB rate cuts are also anticipated in June.

European stocks inched lower on Tuesday, following losses in Asian equities, as calls from U.S. Federal Reserve officials for policy caution tempered investor enthusiasm about potential interest rate cuts this year. The pan-European STOXX 600 index slipped 0.3%, on track for its biggest one-day drop in three weeks, with banks and utility leading sectoral declines.

Lender-heavy Italian share index lagged regional peers, falling about 1% to a more than one-week low. Investors will focus on minutes from the Fed's last policy meeting and chip giant Nvidia's earnings on Wednesday to see if the recent momentum, that pushed U.S. and European equities to record highs, continues.

Denting optimism about potential U.S. rate cuts this year, Fed officials including Vice Chair Philip Jefferson were not ready to say on Monday inflation is heading to the central bank's 2% target, with several calling for continued policy caution. Traders have priced in U.S. rate cuts of 42 basis points by the end of 2024 but anticipate cuts worth 65 bps from the European Central Bank, as per LSEG rate probabilities app, with the first cut from the ECB seen in June.

"Several ECB speakers have recently indicated that a rate cut in June is highly likely, while ECB action thereafter will depend on future data. Eurozone PMIs and ECB negotiated wages, to be published on Thursday, might shed further light in this respect," UniCredit analysts noted. Data showed German producer prices fell more than expected in April mainly due to lower energy prices.

AstraZeneca gained 0.8% after the British drugmaker said it aimed to grow its revenue by about 75% to $80 billion by 2030. Generali dipped 3.3% after Italy's top insurer reported first-quarter results, while energy contractor Saipem climbed 3.8% after it secured $3.7 billion in contracts with a subsidiary of French oil major TotalEnergies .

Swiss fastening systems maker SFS Group climbed 10.7%, after UBS upgraded the stock to "Buy" from "Neutral."

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