European equities retreat from 5-month high as tech, defence shares drag

By Twesha Dikshit

Aug 20 (Reuters) - European equities slipped on Wednesday, retreating from a five-month closing high, after tech stocks tracked dour performances of their Wall Street peers and the defence sector faced pressure for a second day.

The pan-European STOXX 600 index .STOXX was down 0.2%, as of 0830 GMT, with most major bourses trading in losses.

Britain's blue-chip FTSE 100 .FTSE dipped 0.2%, after data showed UK inflation rose to 3.8% in July, its highest since early 2024 and in line with the Bank of England's expectations.

Shares of European defence-linked companies .SXPARO dropped 0.6%, after suffering their worst day in more than a month in the previous session on expectations of a Ukraine peace deal.

U.S. President Donald Trump said Washington might provide air support to Ukraine as part of a peace deal, but ruled out putting troops on the ground.

European leaders weighed additional sanctions to ramp up pressure on Russia in a bid to end the war in Ukraine, the British government said.

Tech stocks .SX8P fell 0.4% a day after U.S. counterparts tumbled on concerns over an AI stock bubble and uncertainty around the interest rate outlook, particularly with Federal Reserve Chair Jerome Powell and other major central bank heads set to speak at the Jackson Hole summit later this week.

"We had a very strong rally for a good three or four months. Stocks are very close to all-time highs and it's natural we have some kind of risk reduction and potential profit-taking," said Marija Veitmane, head of equity Research at State Street.

"Tech stocks had a very strong run and we're getting close to the Jackson Hole meeting ... so investors are kind of positioning for that."

Meanwhile, European Central Bank President Christine Lagarde said the trade deal between the EU and U.S. despite being somewhat higher is not far from the baseline assumed by the ECB.

The Swedish central bank kept interest rates steady as expected, while saying it expects some probability of a rate cut later this year.

The outlook for European corporate health has slightly worsened, the latest earnings forecast showed on Tuesday, with companies expected to report 4.6% growth in the second quarter on average, below last week's expectations of a 4.8% rise, according to LSEG I/B/E/S data.

Mining stocks were the top laggards, with Anglo American AAL.L, Rio Tinto RIO.L and Antofagasta ANTO.L falling between 1% and 2%.

Alcon ALCC.S slumped 9.4%, after the Swiss-American eye-care group cut its 2025 net sales forecast on expected impact of U.S. tariffs.

British medical equipment maker Convatec CTEC.L announced a $300 million share buyback program, sending its shares up 7.2% to the top of the STOXX index.