European stock markets closed lower on Thursday, with the technology sector leading the decline, notably impacted by German software giant SAP.

Investors were also digesting critical inflation data from the Eurozone and its major economies, sparking further concerns about economic stability.

The pan-European STOXX 600 index (.STOXX) dropped 0.8%, settling at 516.80 points, as several sectors faced notable losses.

Automotive sector hits 12-month low

Among the sectors hit hardest was the automotive industry, with the STOXX 600 Automobile Index (.SXAP) plunging 2.1%, marking its weakest performance in nearly a year.

This decline was largely attributed to a significant 4.7% slump in Stellantis (STLAM.MI), following a downgrade by Barclays from “overweight” to “equal weight.”

Tech sector pressured by SAP news

SAP (SAPG.DE) was another major drag on the market, losing 1.5% after reports surfaced that US prosecutors are broadening their investigation into potential price-fixing by the German software developer.

This news pushed the broader European tech sector down by nearly 1%, contributing significantly to the market’s overall decline.

All major sub-sectors of the STOXX 600 closed in the red, with France’s CAC 40 (.FCHI) suffering the steepest losses, falling 1.1%.

Germany’s DAX (.GDAXI) followed closely, dipping 0.9%.

Meanwhile, the UK’s FTSE 100, which had opened 0.3% higher on reports of potential future interest rate cuts from the Bank of England, ended the day flat as early gains were wiped out.

Bank of England Governor Andrew Bailey’s comments, suggesting that interest rates could be reduced more swiftly if inflation continues to show signs of easing, initially lifted UK stocks but failed to maintain momentum.

Investors turn cautious amid mixed economic signals

Several factors weighed on market sentiment, according to Ben Laidler, head of equity strategy at Bradesco BBI.

“The stalling of the Chinese rally, rising oil prices, higher bond yields, and a stronger dollar are challenging the recent bullish narrative,” Laidler told Reuters.

Eurozone business activity slows further

Adding to investor concerns, fresh PMI (Purchasing Managers’ Index) data showed that business activity in the Eurozone contracted in September, dropping to 49.6 from August’s 51.

This marks the first contraction since January, underscoring growing weakness in the region’s services sector.

Among major European economies, Italy’s service sector barely grew, while France experienced a contraction, reversing the Olympic-driven boost seen in August.

In Germany, services activity slowed for the fourth straight month, nearly grinding to a halt.

These PMI figures have heightened expectations that the European Central Bank (ECB) could opt for an interest rate cut at its next meeting on October 17, as the economic outlook for the region remains uncertain.

The data and market performance highlight a challenging economic environment in Europe, with investors carefully monitoring developments in inflation, central bank policies, and global economic signals in the weeks ahead.