European shares flat amidst inflation data, trade jitters

By Purvi Agarwal, Sanchayaita Roy and Pranav Kashyap

(Reuters) -Europe's benchmark stock index ended little changed on Tuesday, as investors ceded ground under the dual pressure of softening economic indicators and persistent global trade anxieties.

The pan-European STOXX 600 closed flat at 548.42 points.

Stocks in Germany rose 0.7%, while those in France gained 0.3%. London's FTSE edged up 0.1%, while Spain's IBEX dropped 0.5%.

On the macroeconomic front, cooling inflation across the bloc — now comfortably below the European Central Bank's target — added to expectations for an aggressive pivot towards monetary easing.

The ECB has cut interest rates seven times since last June, and money markets have all but fully baked in a 25-basis-point rate cut on Thursday, slated to pare the region's interest rate to 2%.

Traders are bracing for further dovish action, anticipating at least 55 basis points, or two more quarter-point cuts, including Thursday's, by year-end.

"This (the data) indicates that price growth in May removes some pressure from the ECB on its dual mandate, and that has reinforced to markets that they are correct with pricing in further rate cuts," said Daniela Hathorn, senior market analyst at Capital.com.

Meanwhile, the Netherlands' 10-year bond hit a session-high of 2.745% amidst a concerted sell-off as a political rupture sent shockwaves through the Netherlands.

This followed the collapse of the Dutch government as far-right leader Geert Wilders' incendiary decision to withdraw his party from the ruling coalition could plunge the country into a snap election.

Elsewhere, the Swiss benchmark index ticked up 0.3%.

May's inflation data surprisingly tipped into negative territory, marking the first consumer price deflation in over four years.

The omnipresent spectre of global trade tensions continued to cast a long shadow, exacerbated by persistent legal wrangling surrounding U.S. President Donald Trump's tariffs.

The administration's appeal to pause a second court ruling against certain tariffs only deepened the uncertainty surrounding their implementation.

Reinforcing these fears, the Paris-based Organisation for Economic Cooperation and Development (OECD) slashed its global growth forecasts, specifically noting the escalating and disproportionate economic drag exerted by Trump's trade war on the U.S. economy.

A Reuters report said that the White House has pressed allies for their most robust trade proposals by Wednesday. Furthermore, a highly anticipated call between Trump and his Chinese counterpart is due this week.

Media stocks fell 1.1%, extending their decline from the previous session.

Basic resources lost 0.8%, in tandem with copper prices. [MET/L]

Among individual names, healthcare stocks were the biggest drag on the index, with GSK dropping 2.1% after Berenberg downgraded its rating to "hold" from "buy".

British water utility Pennon Group fell 6.6% after it swung to an annual pretax loss.

UBS gained 5.3% after Jefferies upgraded the bank's stock to "buy" from "hold".

The energy sector rose 1% - the most among sectors as oil prices jumped nearly 1%. [O/R]

(Reporting by Purvi Agarwal, Sanchayaita Roy Ragini Mathur and Pranav Kashyap in Bengaluru; editing by Janane Venkatraman and Mark Heinrich)