European stocks headed lower on Wednesday, tracking weakness on Wall Street, as investors grew wary of rising inflationary pressures increasing the odds of an early tightening of monetary policy. The pan-European STOXX 600 index fell 1.1%, but was trading less than 2% below its all-time high. Miners, travel and technology stocks were the top decliners. A jump in regulated electricity and gas bills and clothing and footwear prices saw British consumer price inflation more than double in April. Central bank policymakers expect the surge to be temporary, but investors are worried that the price rises may last for a prolonged period of time, pushing central banks to counter it with policy tightening.
Europe has lot less risks because we haven’t performed as well, and from the quantitative easing point of view, the ECB has been clear that they will continue for some period of time. It was essential that monetary and fiscal support are not withdrawn too soon. Investors will be watching for more clues on inflation when the U.S. Federal Reserve releases its minutes from the latest policy meeting. A volatility gauge of European equities rose to its highest almost a week.