By Ankika Biswas and Johann M Cherian

(Reuters) – European stocks dropped on Thursday, hit by bleak earnings from consumer giant Nestle and Dutch digital payments firm Adyen, while sentiment also took a hit following weak economic growth data from the world’s largest economy the United States.

The pan-European STOXX 600 index closed 0.7% lower, after shedding as much as 1.3% intraday, in line with a global stocks rout.

Industrial goods lost 1.8%, leading sectoral declines, as Adyen slumped 18.4% after lower-than-expected first-quarter sales and analysts’ concerns around collected fees being at an all-time low.

Nestle dropped 2% after the world’s biggest packaged food company missed first-quarter organic sales growth estimates, dragging the food and beverages sector down 1.1%.

After signs of recovery earlier this week, the STOXX 600 index hit a volatile patch as investors assessed the impact of record-high interest rates on corporate performance, while staying confident of a European Central Bank rate cut in June.

Technology also shed 1%, tracking sharp declines in U.S. peers after Meta Platforms signalled its costly bet on AI could take years to pay off.

Amplifying the beaten-up sentiment, data showed the U.S. economy grew at its slowest pace in nearly two years, but an acceleration in inflation reinforced expectations that the Federal Reserve would not cut rates before September.

“This raises fears about stagflation in the U.S., which no equity investor wants to think about,” said Steve Sosnick, chief strategist at Interactive Brokers.

“If there are problems in the largest economy, it’s going to spill back into other intertwined economies… European economies and the U.S. are quite dependent upon each other.”

Meanwhile, ECB’ Isabel Schnabel said the final stage of getting eurozone inflation back to 2% will be bumpy, with an erosion in productivity, along with high services costs, posing some of the biggest risks.

Among other stocks, Finnish refiner Neste slumped 13% after first-quarter operating profit missed expectations.

Hermes fell 2.4% as investors booked profits even through the Birkin bag maker reported a 17% surge in first-quarter sales. Peers LVMH and Richemont also lost 2.8% and 1.2%, respectively.

The broader luxury sector fell 1.7%.

French software maker Dassault Systemes declined 4.2% following first-quarter results.

Spain’s Sabadell jumped 7.6% after forecasting lending income would continue growing in 2024, while Deutsche Bank rose 8.2% following a better-than-expected increase in first-quarter profit.

Bucking the broader trend, Britain’s benchmark FTSE 100 touched a record high, led by a 16.1% surge in miner Anglo American on a buyout offer from BHP Group.

(Reporting by Johann M Cherian, Sruthi Shankar and Ankika Biswas in Bengaluru; Editing by Mrigank Dhaniwala, Sherry Jacob-Phillips, William Maclean)

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