Europe close: Stocks drop into the red as rally stalls

After a positive start, European stocks fell into the red by the close of play on Thursday with the Stoxx 600 index retreating from a record high after producer-price data from the US dampened sentiment.

Thursday's primary focus was February's US producer price index, which advanced 0.6% last month – double what economists had been expecting to see. Ths data came ahead of the Federal Reserve's next monetary policy meeting on 19 and 20 March and followed a hotter-than-expected reading of US consumer price inflation earlier in the week.

Following a weak start on Wall Street, European stocks across the continent sank lower, with the Stoxx 600 pulling back 0.18% to 506.4 after hitting a new peak of 507.33 on Wednesday. France's CAC index was the only major benchmark to stay in positive territory, rising 0.29%.

Analyst Chris Beauchamp from IG said a rise in volatility amid worrying US data suggests the recent rally in global equity markets "might be living on borrowed time".

"The steady rise in the Volatility Index does have some investors worried. Although still subdued compared to 2022, the Vix’s rise since January comes even as stocks hit record highs, but is a sign that trouble might be brewing beneath the surface," he said.

"Today’s stronger PPI readings in the US couple with the CPI figures earlier in the week to suggest the Fed’s tone next week might not be quite what investors were hoping for.”

Market movers

Shares in Hapag-Lloyd dropped 15% as the German shipping giant warned of a fall in earnings this year, citing the attacks on commercial vessels in the Red Sea by Yemen-based Houthi militants.

Grifols shares fell 9% as the Spanish pharmaceutical group's credit rating was downgraded to 'B' by S&P Global after reporting weaker free cash generation and higher leverage for 2023 than expected. S&P said it anticipated Grifols would face negative free cash flow and adjusted EBITDA margins below expectations in 2024.

Shares in German renewable energy producer Encavis were up 25% after investment firm KKR confirmed it had made a takeover offer for the company for a total equity value of around €2.8bn.

In the UK, housebuilders were performing well after Vistry reported a 23% jump in annual profits, unveiled another £100m share buyback and forecast higher completions in 2024 driven by strong demand, causing shares to rise 8%. Berkeley Group and Barratt Developments also rallied.