Europe: Shares pare early gains as US inflation data feeds rate hike jitters

EUROPEAN stocks ended modestly higher on Tuesday following upbeat corporate updates but pared most early gains as investors grappled with mixed US inflation data that kept alive expectations of more Federal Reserve rate hikes.

The continent-wide Stoxx 600 index closed 0.1 per cent higher, after touching a near one-year peak earlier in the session.

The US Labor Department’s highly anticipated report showed consumer prices accelerated in January, but there were signs of a slowdown in price pressures which could keep the Fed on a moderate interest rate hiking path.

European markets were reacting to the US inflation data, given expectations that the European Central Bank (ECB) and the Bank of England would likely follow the Fed in its monetary policy decisions, said Stuart Cole, head macro economist at Equiti Capital.

“If you are an inflation hawk, you could easily take today’s numbers and say that further interest rate rises from the Fed are needed. But, for the inflation doves, there is enough there too to say overall underlying pricing pressures remain on a downwards trend.”

Closer to home, data showed euro zone employment grew twice as fast as expected last quarter, pointing to greater underlying inflation pressures that could keep interest rates high for longer.

ECB governing council member Gabriel Makhlouf has said the bank could increase interest rates above 3.5 per cent and likely will not cut them again this year, in an interview with the Wall Street Journal.

The Stoxx 600 has risen 8.8 per cent so far this year led by better-than-expected earnings and a brighter outlook for the euro zone economy.

Telecoms rose 1.5 per cent, on Tuesday, spearheading gains among Stoxx 600 sectors, with Vodafone adding 3.4 per cent after Liberty Global bought a 5 per cent stake in the British telecoms operator.

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US: Stocks muted following mixed inflation data

London’s FTSE 100 rose 0.1 per cent, hitting a fresh record closing high.

Travel and lesiure stocks climbed 1.3 per cent, boosted by a 1.8 per cent rise in shares of Flutter Entertainment after the world’s top online betting firm said it would start consulting shareholders for a US listing.

Coca-Cola HBC AG rose 5.0 per cent after the Switzerland-based bottler of Coca-Cola products reported better-than-expected full-year operating profit.

Limiting gains in European shares, Thyssenkrupp dropped 10.4 per cent after its finance chief said the German warship-to-car parts conglomerate’s restructuring was progressing at a slow pace.

Norwegian aluminium producer Norsk Hydro fell 2.4 per cent after posting a bigger-than-expected fall in fourth-quarter core profit. REUTERS