European stocks fall; Germany enters recession after 1Q GDP falls

© Reuters.

Investing.com - European stock markets retreated Thursday after data showed Germany, the region's largest economy, slipped into recession in the first quarter of the year.

At 03:15 ET (07:15 GMT), the DAX index in Germany traded 0.2% lower, the FTSE 100 in the U.K. dropped 0.4% and the CAC 40 in France fell 0.3%.

Data released earlier Thursday showed that German first-quarter output shrank 0.3% from the previous three months following a 0.5% drop between October and December. This meant that Europe's main growth driver suffered from a winter recession.

“The reluctance of households to buy was apparent in a variety of areas,” the German statistics office said in a statement. “Households spent less on food and beverages, clothing and footwear, and on furnishings.”

The June GfK consumer sentiment index also showed that German sentiment remained weak as the year progressed, with the index only improving slightly to -24.2 in June from -25.7 the previous month.

Yet, despite this negative outlook, the European Central Bank must lift borrowing costs further to return inflation to its target, Governing Council member Bostjan Vasle said in an interview with a Slovenian newspaper Thursday.

Vasle joins several other members of the ECB’s 26-strong Governing Council in calling for more hikes that could yet persist past the summer months.

Investors are also fretting about the slow progress in negotiations over raising the U.S. debt ceiling.

Ratings agency Fitch flagged the possibility of a downgrade to the United States’ ‘AAA’ rating late Wednesday, saying while it still expected lawmakers to reach a deal before the early-June deadline, the ongoing uncertainty had brought up risks of a potential U.S. default.

In corporate news, Tate & Lyle (LON:TATE) stock rose 2% after the food giant posted a 27% surge in revenues in the year to March, benefiting from a surge in the price of sugar over the past year.

United Utilities (LON:UU) stock fell 0.5% after the water supply firm reported a drop in profits of 42%, although it did try an appease investors by lifting its final dividend by 4.6%.

Oil prices edged lower Thursday, retreating from three-week highs amid growing pressure from a strong dollar as uncertainty surrounding the U.S. debt ceiling negotiations mounted.

The U.S. currency climbed to a two-month high overnight on expectations that U.S. rates will remain higher for longer, making crude more expensive for international buyers, stifling demand.

By 03:15 ET, U.S. crude futures traded 0.5% lower at $73.94 a barrel, while the Brent contract dropped 0.4% to $78.08.

Both benchmarks rallied nearly 2% on Wednesday after official data showed U.S. crude inventories sank by more than expected in the past week.

Additionally, gold futures fell 0.2% to $1,959.90/oz, while EUR/USD traded 0.3% lower at 1.0720.