European Stock Index Slips Amid Economic Jitters and Energy Sector Decline

Europe's main stock index ended a five-day winning streak on Tuesday due to a decline in heavyweight energy stocks. The pan-European STOXX 600 index closed 0.5% lower, erasing early gains. Key economic data and central bank policies were in focus, with eyes on this week's Jackson Hole meeting.

Europe's main stock index snapped a five-day winning streak on Tuesday, dragged down by heavyweight energy stocks, as investors evaluated domestic economic data and braced for a pivotal meeting of central bankers in Jackson Hole this week.

The pan-European STOXX 600 index closed 0.5% lower, erasing early gains and easing from its near three-week high level hit earlier in the day. All regional bourses slipped into negative territory. An early drop in oil prices knocked the energy sector down by 2% to an over one-week low, despite a gradual price recovery during the day.

In a Reuters poll, European shares are forecast to rise modestly by year-end, thanks to potential central bank interest rate cuts. However, strategists remain cautious on the outlook for the region's largest companies. Both the STOXX 600 and blue-chip STOXX50E are up over 7% this year, having weathered a recent bout of volatility due to recession fears in the U.S.

"Goldilocks thematic and expectations that the Fed is closer to pivot are fueling risk-on sentiment," stated OCBC strategists. "However, mild unwinding of these positions is possible as the week progresses."

Investors are keeping an eye on the minutes from the Federal Reserve's July policy meeting on Wednesday and on Chair Jerome Powell's comments at the Jackson Hole conference in Wyoming on Friday. Concrete hints on U.S. rate cuts could boost risk assets globally, even as concerns over the world's largest economy have recently eased.

Among major movers, Norwegian salmon farmer SalMar dropped 7.4% after reporting operating profit below estimates and cutting its Iceland harvest outlook. BT fell 6.4% following a move by partner TV company Sky to launch its broadband services on CityFibre's network. Danish medical equipment maker Coloplast lost 5% after reporting third-quarter earnings, while luxury and automobile stocks were among the few bright spots.

In Sweden, the central bank cut its key rate as expected and indicated that policy easing could accelerate if price pressures don't increase, suggesting up to three more cuts this year. Nevertheless, Swedish shares fell 0.5%, ending a five-day gaining streak.

On the data front, German producer prices decreased by 0.8% year-on-year in July, aligning with expectations.

(With inputs from agencies.)