(Bloomberg) -- European stocks dropped after US wage inflation accelerated, adding to the view that price pressures remain too high and increasing the odds that the Federal Reserve will be in no rush to reduce interest rates. 

The Stoxx 600 Index was 0.7% lower by the close, with the auto sector trailing the pan-European benchmark as results from Volkswagen AG and Mercedes-Benz Group AG disappointed. Real estate and personal care stocks outperformed. Shares had been subdued all day on further evidence of sticky inflation that overshadowed better-than-expected growth data in Europe. 

Novo Nordisk A/S went from being one of the benchmark’s biggest drags to its best performer after Eli Lilly & Co. raised its annual outlook for sales and profit as the company races to satisfy soaring demand for its blockbuster weight-loss and diabetes drugs. Meanwhile, chemicals were boosted by Clariant AG’s stronger-than-expected start to the year. 

As markets reassess the likelihood of central bank easing this year, some equity investors believe stronger global economic growth can keep driving indexes higher, as long as stagflation doesn’t take hold. In the US, a broad gauge of labor costs accelerated in the first quarter by more than forecast, illustrating persistent wage pressures that are keeping inflation elevated.

“While earnings and guidance have been relatively constructive on the whole, they are being somewhat overshadowed by worries around sticky inflation and rising yields,” said Thomas McGarrity, head of equities for RBC Wealth Management.

Elsewhere, data on Tuesday showed that the euro zone exited recession with much quicker growth than expected, driven by its top four economies, though the recent retreat in inflation stalled. 

Gross domestic product in Germany, France, Italy and Spain beat estimates compiled by Bloomberg for the first three months of the year. Separate data showed consumer prices in the euro area rose an annual 2.4% in April — matching March’s pace and in line with analyst estimates. Core prices as a whole, which exclude volatile items such as food and energy, moderated this month — to 2.7% from 2.9%, coming in a touch higher than anticipated.

For more on equity markets:

• This Rebound Looks Fragile, and Now Comes the Fed: Taking Stock
• M&A Watch Europe: Applus, Anglo American, Elliott’s Hit List
• Investors Scoop Up EU IPOs Again, Send Shares Higher: ECM Watch
• US Stock Futures Unchanged; Coursera, F5 Inc, Rambus Fall
• Blackstone’s Back, Alright: The London Rush

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--With assistance from Michael Msika and Sagarika Jaisinghani.

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