Europe Markets

European stocks close lower as investors digest inflation data; BT down 6%

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Key Points
  • Earnings in Europe came from Burberry, BT Group and Telefonica on Thursday.
  • European markets followed the negative trend seen in Asia-Pacific overnight and the U.S. on Wednesday after the latest U.S. inflation data for April showed higher-than-expected price pressures.

European stocks closed slightly lower Thursday as markets around the world were spooked by the latest U.S. inflation data.

The pan-European Stoxx 600 ended the session down 0.2%, paring losses slightly from earlier in the session. Basic resources were the laggards, dropping 3%, while utilities shares were the top performers, adding 0.8%.

European markets followed the negative trend seen in Asia-Pacific overnight and the U.S. on Wednesday after the latest U.S. inflation data for April showed higher-than-expected price pressures.

The U.S. Labor Department reported that the prices American consumers pay for goods and services accelerated at their fastest pace since 2008 in April, with the Consumer Price Index spiking 4.2% from a year ago.

It has sparked fears that the U.S. Federal Reserve could increase interest rates sooner rather than later.

Read more: Inflation spooks stocks and raises fear the Fed is wrong that the price spike is temporary

On Wall Street, U.S. markets rebounded, with investors picking up major technology shares after a sharp pullback in the previous session.

Wednesday's inflation reading prompted sharp declines in U.S. stocks Wednesday, with the Dow falling 681 points, or 1.99% lower, to notch its single-worst session since January. The S&P 500 lost 2.1%, its biggest one-day drop since February, while the tech-heavy Nasdaq Composite slid 2.6%.

The Fed has said previously that rising rates are temporary and that it would tolerate inflation that rises above its 2% target. It has said it will look at a range of inflation as acceptable.

The concern is that inflation could become too hot, however, and the Fed would be forced to raise interest rates and keep raising them — a negative for stocks.

Earnings in focus

Earnings in Europe came from Burberry, BT Group and Telefonica.

Burberry reinstated its dividend and said its recovery from the crisis had accelerated, with sales and profits down from the same period last year but beating average analyst forecasts. However, the British luxury brand's shares sank 4%.

"A weak wider market and some elements of profit taking have made for an ugly start for the shares in response to the results," Richard Hunter, head of markets at Interactive Investor, said of Burberry.

"While this update will reassure bulls of the stock, given the recent strength of the price performance, the shares are seen as being up with events for now, with the market consensus coming in at a hold."

Telefonica shares were down slightly while BT tumbled 5.9%.

"BT's results are largely in line with expectations with revenues and profits falling on consumer demand and a well-intentioned bonus to staff for their work during the pandemic," said Ben Barringer, equity research analyst at Quilter Cheviot.

"However, while it has performed well in the short-term, uncertainty remains for a business that is complicated and where inefficiencies remain."

At the top of the European blue chip index, Swedish gambling group Evolution Gaming rose 5%.

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— CNBC's Ryan Browne, Patti Domm and Thomas Franck contributed to this report.