European Stocks Dip as Investors Anticipate ECB Rate Cuts

By Sruthi Shankar

European stocks dipped on Thursday as investors braced for a rate cut from the European Central Bank (ECB) and awaited hints on policy moves next year amid struggling euro zone growth and heightened political risks.

After a positive open, the pan-European STOXX 600 index slipped 0.1%. Retail stocks lagged, while automakers led gains.

Rate-sensitive euro zone bank shares rose 0.4%.

The ECB is expected to cut interest rates again, with traders pricing in an 81% chance of a 25 bps reduction and a 19% chance of a 50 bps cut, as euro zone inflation nears target and the economy falters. The ECB's rate decision is due at 1315 GMT.

Meanwhile, Swiss stocks got a lift after the Swiss National Bank cut its interest rate by 50 basis points, the largest reduction in nearly a decade, to stay ahead of anticipated cuts by other central banks and to curb the rise of the Swiss franc.

"In Europe, they're probably cutting rates too slowly. The economies are slowing and the central banks are really trying to catch up while in the U.S., we see more pre-emptive policy cuts," said Marija Veitmane, head of equity research at State Street Global Markets.

"That's what we see in financial markets as well; U.S. stocks are outperforming European ones, and the dollar is rallying."

While the STOXX 600 trades below all-time highs, it has increased just 8.5% year-to-date, compared to a 27.6% gain for the S&P 500.

Among stocks, SThree Plc fell 26% after the British recruiter warned on current financial year profit, citing tough hiring market conditions amid increased political and macro-economic uncertainty in Europe.

Diageo Plc rose 3.8% after UBS upgraded the stock to "buy" from "sell", indicating positive analysis for the spirit maker's U.S. business.

Swiss contract drugmaker Lonza rose 6.1% following plans to exit its capsules and health ingredients business.