European Stocks Hit Two-Week Lows Amid Inflation Concerns and Political Uncertainty

European stocks fell to two-week lows, with the STOXX 600 index down 0.5% amid services inflation and political uncertainty in France. Investors remain cautious ahead of the second-round vote on July 7. Core inflation in the euro zone remains high, affecting ECB policy decisions. Individual stocks experienced mixed performance.

European stocks fell to two-week lows on Tuesday as the relief rally in French shares following the first round of parliamentary elections faded, while data pointed to elevated services inflation in the euro zone.

The pan-European STOXX 600 index was down 0.5% as of 0917 GMT, with insurers and automakers were among the top sectoral decliners. France's blue-chip CAC 40 index dropped 0.5% as investors remained cautious ahead of a second-round vote on July 7.

European stocks finished 0.3% higher on Monday, helped by a 1.1% jump in the battered French market after Marine Le Pen's National Rally (RN) party scored a smaller win than some polls had expected, lowering the chance of an absolute majority for the far-right party. "Both potential outcomes of this election, whether a far-right or a far-left coalition, don't give political stability. Both would lead to a lot of indecision, which can cause some concern for investors," said Daniela Hathorn, senior market analyst at Capital.com.

Meanwhile, data showed euro zone inflation eased last month but a crucial services component remained stubbornly high, likely fuelling concern among some European Central Bank policymakers that price pressures could remain elevated. Consumer inflation in the 20 nations sharing the euro currency slowed to 2.5% in June from 2.6% a month earlier, but a closely watched core inflation figure held steady at 2.9%.

"The fact that services inflation, which is most sensitive to domestic economic conditions, has remained high this year strengthens the case for caution at the ECB," said Jack Allen-Reynolds, euro-zone economist at Capital Economics. ECB President Christine Lagarde said on Monday that benign economic developments indicate that rate cuts are not urgent.

Pierre Wunsch, another ECB policymaker, said the central bank's next rate cut is still a relatively easy decision, but subsequent moves should only come once inflation is clearly heading towards the 2% target. Traders are pricing in a 50% chance of a 25 basis points (bps) rate cut in September and an even lower chance of another cut in December, as per LSEG data.

Among individual stocks, Sodexo dropped 5.4% after the French food caterer posted third-quarter sales below expectations, citing a slowdown in China. Siemens Energy rose 4.9% after the energy engineering group said it plans to recruit more than 10,000 employees by 2030.

Germany's HelloFresh jumped about 13% after J.P.Morgan removed the food delivery company from its negative catalyst watch.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)