By Shristi Achar A and Shashwat Chauhan
(Reuters) -European shares fell on Tuesday as investors reined in expectations of early interest rate cuts following recent comments from European Central Bank officials, while Hugo Boss slumped after missing fourth quarter operating profit estimates.
The pan-European STOXX 600 ended 0.3% lower after falling as much 0.8% during the day, touching its lowest level in over a month.
Government bond yields across the continent were volatile as ECB policymakers maintained a cloud of uncertainty over the timing of rate cuts, even as investors bet on early and aggressive policy reversal. [GVD/EUR]
"Everyone's positioned for monetary policy easing this year, starting from the Fed, but also by the ECB and to a smaller degree, the Bank of England," said Andrea Cicione, head of research at GlobalData.TSLombard in London.
"But of course, with so much easing already priced in, it's inevitable that there are days like today when investors start questioning are central banks actually going to do as much as the markets are already pricing in."
Traders see a near-24% chance of the first rate cut happening in March, down from more than 30% in the previous week. [O#ECBWATCH]
Rate-sensitive real estate fell 1.1%, while utilities, often considered as a bond proxy, lost 1.2%.
Banks extend loses to a second straight session, down 1.1%.
While market participants remain focussed on ascertaining the timing of rate cuts from major central banks, the earnings season currently underway in the United States and Europe is also being watched to assess the impact of high interest rates on earnings.
Fourth quarter earnings for STOXX 600 companies are expected to decrease 7.1% year-on-year, as per LSEG I/B/E/S data.
Meanwhile, a survey showed expectations of lower interest rates lifted German investor morale in January, while Germany's inflation rose 3.8% on an annual basis in December, confirming the preliminary data. Germany's DAX 40 ended 0.3% lower.
Eurozone consumers have slashed their inflation expectations, according to an ECB survey, in comforting news for the ECB's efforts to contain prices.
Media stocks were a bright spot, up 0.4%, helmed by a 1.6% rise in Publicis after Goldman Sachs (NYSE:GS) raised the French advertising group to "buy" from "neutral."
Among other movers, Hugo Boss slumped 9.7% to the bottom of STOXX 600 after the German fashion house missed expectations for fourth-quarter EBIT in its preliminary results.
Lindt & Spruengli jumped 6.6% after the Swiss chocolate maker said its 2023 sales growth beat market expectations, boosted by higher product prices.