European stocks surrender gains amid Fed rate caution

European stocks pulled back on Thursday, giving up some gains from Wednesday’s positive US inflation data, as the Federal Reserve’s hawkish tone on interest rates weighed on sentiment.

The Stoxx 600 fell 0.3%, retreating after its biggest advance in a month. Futures for the S&P 500 and Nasdaq 100 pointed higher, while the dollar and Treasuries showed little change.

EU bonds declined as hopes of their inclusion in key sovereign benchmarks took a hit.

Earlier, risk-on assets had rallied when US core consumer prices hit a three-year low. However, the Fed’s projection of just one quarter-point rate cut this year, down from three expected in March, tempered enthusiasm.

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“The Fed dot plot was marginally hawkish, causing some market pullback,” said Mohit Kumar, Chief Economist for Europe at Jefferies International, suggesting any selloff might be a buying opportunity.

Adding to the caution, ECB’s Joachim Nagel noted stubborn consumer price growth in the eurozone, saying, “The last mile is the most complicated.”

In commodities, oil dipped after a three-day rise due to an unexpected US crude stockpile build and the Fed’s rate outlook. Gold also declined.