European financial stocks led markets lower Tuesday as investors trimmed bets on a faster exit from easy monetary policy by the European Central Bank amid slowing inflation.
The Stoxx Europe 600 Banks index, the broadest measure of share prices for the sector, was marked 0.34% lower by 11:15 BST, amid steep declines for lenders in France and Germany. BNP Paribas SA (BNPQY) , France's biggest bank, was marked 4.6% lower, changing hands at €63.25, although a portion of the decline is linked to the fact that the stock is trading without the rights to its regular dividend.
Domestic rival Societe Generale SA (SCGLY) was seen 0.3% lower at €49.48 while in Germany, Deutsche Bank AG (DB) traded 1.22% lower at €16.21. Credit Suisse AG (CS) and UBS AG (UBS) were marked 0.77% and 1.4% lower, respectively, in the opening hours of trading.
Much of the banking sector pullback is linked to ECB President Mario Draghi's appearance before the a committee of the European Parliament Monday in Brussels, during which he indicated that the region's nascent recovery was still in need of "substantial" monetary policy support.
Despite a firmer recovery, "underlying inflation pressures have remained subdued," Draghi said. "Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective. For domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation."
The dovish tone of the comments added to the single currency's pressure after reports from the German media suggested Greece could default on upcoming payments linked to its 2015 bailout agreement.
It also helped clip more than 0.3% from the euro in overnight Asia trading as the currency fell to 1.1162 against the U.S. dollar. Benchmark 10-year German bund yields, which move in the opposite direction of bond prices, fell 2 basis points to 0.30%.
Draghi's comments were also supported by slowing inflation data from Spain, where the estimate of consumer price increases slowed to 2% in May from an April reading of 2.6%, and the German state of Saxony, where headline inflation slipped to 1.6%.
Germany's federal statistics office, Destatis, will publish its flash estimate of May inflation at 13:00 BST while Eurostat, the official statistics office of the single currency area, will release its flash estimate Wednesday at 10:00 BST.