Europe: Shares rise but stubborn inflation data caps gains
EUROPEAN shares rose on Thursday boosted by consumer staples and energy stocks, but data suggesting euro zone inflation remained stubbornly high bolstered fears of more European Central Bank rate rises.
The continent-wide Stoxx 600 reversed early losses and closed 0.5 per cent higher.
Energy stocks rose 1.4 per cent supported by firm crude prices on signs of a strong economic rebound in top crude importer China.
A sharp weakness in sterling lifted UK’s exporter-heavy FTSE 100 index up 0.4 per cent.
London’s internationally focussed consumer staples stocks such as Diageo and Unilever rose over 1 per cent each, while the European food and beverage index added 1.8 per cent.
“There’s certainly the assumption that there is still mileage in the tank when it comes to price increases, that margins can be protected, the consumer is going to be resilient to a degree and these companies are still going be able to make money,” said Danni Hewson, financial analyst at AJ Bell.
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Meanwhile, consumer price inflation in the 20 countries sharing the euro currency rose 8.5 per cent in February, compared with an increase of 8.6 per cent a month earlier on lower energy prices, but the reading was still above 8.2 per cent projected in a Reuters poll of economists.
While inflation was also lower than a double-digit peak hit in October, fears lingered that the earlier surge in energy prices has seeped into the economy via so-called second-round effects, making price growth even more difficult to root out.
“High inflation means more aggressive ECB rates, which means less conducive business conditions for European companies,” said Giles Coghlan, chief market analyst at HYCM.
Earlier in the week, data from Spain, France and Germany indicated that inflation remained sticky and fed into fears that the ECB would remain hawkish for longer.
ECB Chief Christine Lagarde said price declines have not been stable and that rates will have to rise higher and stay higher for some time.
European markets ended the first two months of this year in gains – a first in four years – with banks adding 18 per cent as lenders benefit from higher net interest income, a consequence of elevated borrowing costs.
Still, the global equity market momentum has stalled of late as investors price in steep prices and higher rates.
Irish stocks led gains among regional peers, up 2.1 per cent after CRH surged 7.9 per cent on posting better-than-expected results.
Europe’s biggest lender, HSBC Holdings Plc slid 3.3 per cent as it traded without the entitlement of a dividend. The bank sector index fell by 0.8 per cent.
Credit Suisse tumbled 7.0 per cent and hit a fresh record low following reports this week about talent leaving the beleaguered Swiss bank.
Flutter’s 0.9 per cent fell as it reported full-year core profit at the lower end of its guidance range. REUTERS
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