EUROPE’S benchmark stock index fell to a one-month low on Thursday, as banks took a hit after the European Central Bank held rates steady but signalled imminent cuts, while Deutsche Telekom dropped to a five-month low on trading ex-dividend.

The ECB maintained interest rates at record high as expected, but signalled it may soon start to cut them, even as investors question whether stubborn US inflation will stop the Federal Reserve from following close behind.

The pan-European Stoxx 600 closed 0.4 per cent lower in volatile trade, with the banking sector taking the biggest hit, falling 2.4 per cent and notching its steepest one-day drop in over eight months.

The indexes of top economies in the currency union such as Germany, France, Italy and Spain were also down between 0.3 per cent to 1.2 per cent.

“The ECB’s decision to update its guidance suggests that an interest rate cut at the next meeting in June is very likely,” Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics wrote.

“We expect the Bank to reduce the deposit rate from 4 per cent currently to 3 per cent by the end of the year.”

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The telecoms sector also shed 2.1 per cent, dragged down by a 6.2 per cent drop in Deutsche Telekom as the company traded ex-dividend.

Also denting equities were higher euro zone bond yields as expectations for a higher-for-longer scenario for US interest rates more than offset the ECB remarks.

Investors also parsed a cooler-than-expected March producer inflation data in the United States.

After a lacklustre week, the Stoxx 600 had hit a one-month low on Wednesday after a hot US inflation report sparked concerns on the timeline for the Federal Reserve’s first rate cut, while raising expectations that the ECB could lower rates before its US counterpart.

Among other sectors, utilities and healthcare were among the rare bright spots, up 0.5 per cent each.

As for individual stocks, Ambu climbed 4.6 per cent after the Danish maker of single-use endoscopy solutions hiked its full-year outlook and posted preliminary second-quarter financials.

Lufthansa dropped 2.7 per cent after the German carrier extended a suspension of its flights to Tehran, with the Middle East on alert for Iranian retaliation for a suspected Israeli airstrike on the country’s embassy in Syria.

Idorsia postponed its 2023 and first-quarter results publication, sending the Swiss biotech firm’s shares down 26.4 per cent.

AstraZeneca rose 2.1 per cent after the drugmaker said it planned to increase its annual dividend by 7 per cent for 2024. REUTERS