European shares fall on jitters ahead of U.S. CPI data

European shares fell on Wednesday as gains in Credit Agricole (EPA:CAGR) after the bank’s upbeat earnings were more than offset by market jitters ahead of U.S. inflation data that is likely to shape expectations for rate cuts in the world’s largest economy.

The pan-European STOXX 600 index reversed early gains and was down 0.4% by 0808 GMT.

The U.S. inflation data, due at 8:30 am ET (1230 GMT), is expected to show that headline consumer prices maintained a 5% year-on-year growth rate in April, while they rose 0.4% on a monthly basis, compared with a 0.1% gain in March.

The data will have a significant impact on the odds of the Federal Reserve cutting rates later in the year, the chances of which received a setback after a strong U.S. payrolls report last week.

While headline CPI in the U.S. has been steadily trending lower, core inflation remains too stubborn for the Fed’s comfort, Deutsche Bank (ETR:DBKGn) strategists said in a note.

Shares of Credit Agricole SA gained 5.3% after France’s second-biggest listed bank beat first-quarter earnings estimates on a boost from trading revenue.

European banks were the top sectoral gainers on the STOXX 600. They were followed by real estate stocks, led by a rebound in Sweden’s SBB following steep declines earlier this week on debt concerns.

On the flip side, Swedish Orphan Biovitrum (SOBI) dropped 15.5% to the bottom of the STOXX 600 after the drug maker said it had agreed to make a $1.7 billion cash offer to buy U.S.-based CTI BioPharma.

Siemens Healthineers fell 7.4% as the medical device maker said it was discontinuing its heart surgery robots business after its quarterly operating profit fell 30%.

The declines in those two stocks pushed the healthcare sector down 0.5%.

Meanwhile, data showed German consumer prices, harmonised to compare with other European Union countries, rose by 7.6% on the year in April.

The European economy has held up better than feared but analysts caution the outlook is not as rosy.

“While we definitely do not expect a recession in the euro zone, but from here it would be difficult (for the economy) to continue to accelerate,” said Reinhard Cluse, Chief European Economist at UBS.

Cluse said a likely U.S. recession and the effects of monetary tightening so far were headwinds to euro zone growth.

Among other movers, Evotec gained 9.3%, after the German biotech company said on Tuesday its unit entered a strategic partnership with Sandoz, a unit of Swiss drugmaker Novartis.

Alcon jumped 7.4% to the top of the Swiss blue-chip index after the company reported better-than-expected first-quarter earnings.

Of the 205 companies in the STOXX 600 that have reported earnings so far, over half have beaten analyst estimates, according to Refinitiv data.