By Paolo Laudani, Sruthi Shankar and Johann M Cherian
(Reuters) -European shares closed lower on Thursday, with defence and industrial stocks leading losses, after data showed U.S. inflation ticked higher, while investors waited for France to unveil its 2025 budget.
The pan-European STOXX 600 index fell 0.2%, with defence, industrials and technology each losing over 1%.
Yields on the German 10-year bond, which tend to react to U.S. data, pared declines but remained at a one-month high, also pressuring equities. [GVD/EUR]
U.S. consumer prices rose slightly more than expected in September, but the annual inflation increase was the smallest in more than 3-1/2 years.
The report, however, did little to thwart expectations that the Federal Reserve will cut interest rates by 25 basis points at its November meeting, the CME Group's (NASDAQ:CME) FedWatch Tool showed.
"It is still above target but lower than the Fed funds rate. So that means that the Fed still has room to manoeuvre," said Yvan Mamalet, senior market strategist at SG Kleinwort Hambros.
Closer to home, markets expect the European Central Bank to trim interest rates by nearly 50 basis points by year-end, LSEG data showed.
Minutes from the ECB's September meeting showed policymakers appeared content with the drop in inflation but argued for a gradual policy easing given stubborn price pressures.
The STOXX 600 has been choppy this week as uncertainty around Beijing's stimulus plans weighed on sentiment. China's finance ministry will detail plans on fiscal stimulus at a highly anticipated news conference on Saturday.
The French government will unveil its 2025 budget later on Thursday, with plans for 60 billion euros ($65.68 billion) worth of tax hikes and spending cuts to tackle a spiralling fiscal deficit.
Markets are likely to pay close attention to whether the budget can get through parliament without being watered down too much.
Mamalet said it is very hard to have a strong judgment on the budget's impact because what the parliament has agreed on might look very different from what was first presented.
Among individual stocks, GSK rose 3.2% after the British drugmaker agreed to pay up to $2.2 billion to settle U.S. lawsuits that claimed its discontinued heartburn drug Zantac caused cancer. The figure was smaller than what some analysts had feared.
Shares in Italy's fourth-largest bank BPER rose 8.2% to the top of the country's main index after the lender provided a new 2024-2027 business plan.
Deutsche Telekom (ETR:DTEGn) rose 1.7% after saying it expects its net revenue to increase by an average of 4% annually through 2027, helped by artificial intelligence and automation.