Europe close: Hawkish comments from BoE and ECB weigh on stocks

European stocks finished in the red as a lack of corporate earnings and economic data caused markets to focus on hawkish comments from central bankers.

Stocks have rallied over recent weeks on hopes that central bank may soon begin to ease monetary policy on the back of loosening labour-market conditions and falling inflation. But comments from both the Bank of England governor and European Central Bank president have dampened optimism over the past 24 hours that any rate cuts would be imminent.

Meanwhile, a weak start on Wall Street further weighed on sentiment as disappointing earnings from blue-chip retailers and nervousness ahead of Nvidia's earnings prompted some profit-taking following recent gains. The release of the minutes from the latest Federal Open Market Committee meeting were also likely affecting investors' appetite for risk.

That said, the Stoxx 600 index finished just 0.1% lower, as mild losses in the UK, Germany, France and Spain masked some heavy falls on Italy's FTSE MIB due to losses in the banking sector.

Hawkish comments from BoE, ECB

Speaking on Monday evening, BoE governor Andrew Bailey said it was "far too early" to be discussing rate cuts. He said that markets were currently "underestimating" the threat that inflation posed.

Similarly, ECB president Christine Lagarde warned there was "still a journey ahead of us” to get inflation back down to the 2% target. “Our monetary policy is in a phase where we need to be attentive to the different forces affecting inflation – but always firmly focused on our mandate of price stability," she said.

"Central bankers everywhere seem anxious to dial back expectations that the next move in interest rates will be down," said analyst David Morrison from Trade Nation.

Italian banks drop

Shares in Banca Monte dei Paschi di Siena dropped 8% in Milan after the Italian government offloaded a 25% stake in the banking group. The government, which bailed out the struggling lender in 2017, raised €920m from the deal, taking its shareholding from 64.23% to 39.23%. Shares were sold at €2.92, a discount of 4.9% on Monday's closing price, but 50% higher than the share price back in November 2022 when the bank undertook a capital raise.

Banking peers Banco BPM, BPER Banca, FinecoBank and Banca Generali all finished with heavy losses.

In London, insurers Direct Line and Admiral were performing well after comments from analysts at Citi, who pointing to "material improvements" in motor claims inflation trends for the sector since the first half. The bank upgraded Admiral from 'sell' to 'buy' and reiterated its 'buy' rating on Direct Line.

Coca-Cola HBC was also higher after announcing the launch of a share buyback programme that will see it return up to €400m to shareholders. The buyback is expected to run for around two years.