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Europe markets close lower as U.S. debt ceiling talks stumble and UK inflation drops less than forecast

This is CNBC's live blog covering European markets.

European markets closed lower Wednesday, with market sentiment rattled by stumbling U.S. debt ceiling talks.

The Stoxx 600 index closed 1.8% lower, with nearly all sectors down more than 1% and autos, banks, insurance and travel stocks all shedding more than 2%.

European markets


House Speaker Kevin McCarthy on Monday said he had a "productive" discussion with President Joe Biden but there were few indicators of progress made in negotiations on Tuesday. 

U.S. Treasury Secretary Janet Yellen previously warned lawmakers that a default in early June is "highly likely."

Markets were downbeat globally, with Asia-Pacific shares falling and U.S. stocks trading lower.

U.K. inflation figures out Wednesday morning showed a fall in the headline rate from 10.1% to 8.7%, though this was above a Reuters consensus estimate of 8.2%. Prices rose 1.2% month on month, above a forecast of 0.8%.

Inflation in food and non-alcoholic beverages eased very slightly, but remained sky-high at 19.1%.

"A large part of April's drop is simply down to accounting measures," said Jeremy Batstone-Carr, European strategist at Raymond James Investment Services. "April 2022 saw energy prices increase by 47.5%. Thanks to the government's energy price guarantee, this energy surge has now dropped out of the year-on-year equation, leading the comparative inflation rate to naturally fall."

The rise in core CPI to 6.8% from 6.2% has dealt a "crushing blow to a beleaguered Bank of England," he added, and indicates interest rates may not have peaked, with another 25 basis point hike to 4.75% in June firmly on the table. Economists at Capital Economics said they now expect a peak rate of 5.25%, while money markets priced in bets the central bank will need to go as high as 5.5%.

The International Monetary Fund on Tuesday joined the Bank of England in saying that it no longer expects a U.K. recession this year.

Special payouts have pushed global dividends to record high: Janus Henderson

Companies are continuing to generate cash for shareholders despite a tough year, says Ben Lofthouse, head of global equity income at Janus Henderson.

Special payouts have pushed global dividends to record high: Janus Henderson
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Special payouts have pushed global dividends to record high: Janus Henderson

Trichet: EU must remain vigilant in fragile world

Jean-Claude Trichet, the former president of the European Central Bank, discusses central bank policy as the ECB celebrates its 25th anniversary.

Trichet: EU must remain vigilant in fragile world
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Trichet: EU must remain vigilant in fragile world

Stocks on the move: Embracer plummets 45%, Marks & Spencer up 13%

Shares of Embracer were down as much as 45% after a partnership deal fell through, prompting guidance cuts. The would-be partnership was described as "groundbreaking" in a press release by the gaming giant, who said the deal would have "set a new benchmark" for the industry.

The deal would have been worth around $2 billion in revenue over a six-year period, but late Tuesday night Embracer "received a negative outcome" from the counterparty, which was "unexpected" to Embracer's management and board of directors.

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Embracer share price.

British retailer Marks & Spencer saw its shares bounce 13% on strong trading results.

Profit before tax was up to £475.7 million ($590 million) for the year to April 2023, compared to £391.7 million in the previous 12-month period.

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M&S share price.

— Hannah Ward-Glenton

U.S. markets open lower

U.S. stocks fell Wednesday, with debt ceiling talks stretching on as the earliest expected date that the U.S. could default draws nearer.

Negotiators for both sides are expected to meet again Wednesday, according to Reuters.

— Samantha Subin

German business climate weakens

The ifo Business Climate Index, a widely-watched gauge of German economic sentiment, declined in May after six consecutive increases.

The survey flagged "significantly more pessimistic expectations," with manufacturing registering a "particularly steep decline," and trade indicators down sharply.

On Tuesday, S&P Purchasing Managers' Index figures indicated overall German business output grew month-on-month but manufacturing experienced a downturn.

— Jenni Reid

ECB celebrates 25th anniversary amid price pressures

ECB celebrates 25th anniversary amid price pressures
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ECB celebrates 25th anniversary amid price pressures

It's "time for a pause, not a stop" on rate hikes to tackle inflation says Vitor Constancio, former vice president of the ECB.

U.S. debt ceiling impasse presents room for more market upset, Barclays says

U.S. debt ceiling impasse presents room for more market upset, Barclays says
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U.S. debt ceiling impasse presents room for more market upset, Barclays says

Julien Lafargue, chief market strategist at Barclays, says there is more room for upset in stock markets as the U.S. debt ceiling negotiations roil on. He adds that a long-anticipated U.S. recession remains a possibility.

British pound falls, gilt yields climb on hot inflation print

The British pound fell 0.3% against the dollar and slipped by 0.1% against the euro after U.K. inflation came in hotter than forecast, with headline CPI at 8.7%, versus the 8.2% predicted in a Reuters economist poll.

Core inflation accelerated from 6.2% to 6.8%, fueling bets that the Bank of England will raise interest rates further.

Economists at Berenberg said a 25 basis point hike to 4.75% in June was now their base case, followed by one cut in the fourth quarter.

U.K. bond yields were sharply higher, with the 10-year gilt yield up 8 basis points to 4.243% and the 2-year gilt yield up 22 basis points to 4.353%.

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British pound/US dollar.

— Jenni Reid

Markets have not yet fully priced in the risk of a U.S. debt default, analyst says

Markets have not yet fully priced in the risk of a U.S. debt default, analyst says
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Markets have not fully priced in risk of U.S. defaulting on its debt: analyst

Sophie Lund Yates, lead equity analyst at Hargreaves Lansdown, weighs in on the economic outlook as U.S. debt ceiling deal negotiations continue.

SSE CEO: Need to compete with Europe and the U.S.

SSE CEO: Need to compete with Europe and the U.S.
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SSE CEO: Need to compete with Europe and the U.S.

Alistair Phillips-Davies, CEO of SSE, says more investments needed to ensure flexible and security of energy.

Europe stocks fall

European stocks were sharply lower early Wednesday, with the benchmark Stoxx 600 index down 1.4% and all sectors and major bourses trading in the red.

Auto stocks fell 2.3% and mining dropped 2.25%. France's CAC 40 was down 1.54%, with the U.K.'s FTSE 100 and Germany's DAX lower by 1.4% and 1.3%, respectively.

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Stoxx 600 index.

— Jenni Reid

UK inflation falls below 10% for the first time since August

U.K. inflation dropped sharply in April, as energy prices retreated and the impact of Russia's invasion of Ukraine began to drop out of the annual consumer price comparison.

Headline CPI inflation came in at 8.7% year-on-year, the Office for National Statistics said, down from 10.1% in March but above a consensus estimate of 8.2% from a Reuters poll of economists.

Read the full story here.

— Elliot Smith

CNBC Pro: Goldman Sachs loves Uber, Meta and Amazon — and ranks them in order of preference

Goldman Sachs has named Amazon, Uber, and Meta as three tech stocks that offer the "most compelling risk/reward" looking ahead to the rest of the year.

In a note to clients on May 19, Goldman also ranked the three companies in order of preference.

CNBC Pro subscribers can read more here.

— Ganesh Rao

CNBC Pro: Fund manager reveals an overlooked corner of healthcare with big opportunities

There's an opportunity for investors in pharmaceuticals that's been "underrepresented for a very long time," according to fund manager Philip Ripman of Storebrand Asset Management.

He names three stocks to play the theme.

CNBC Pro subscribers can read more here.

— Weizhen Tan

European markets: Here are the opening calls

Only London's FTSE index is open today with the German DAX, French CAC and Italian FTSE MIB closed for the May Day/Labour Day holiday.

The FTSE 100 index is expected to open 11 points lower at 8,132, according to data from IG.

Earnings come from GSK, Next, Abrdn, Metro Bank, Aston Martin Lagonda and Domino's Pizza Group.

— Holly Ellyatt