Europe: Shares slip on sticky inflation fears, but still end Feb higher
EUROPEAN shares slipped on Tuesday after data from France and Spain pointed to inflation being stickier than feared, but still ended their second straight month higher supported by sharp gains in rate-sensitive banking stocks.
The continent-wide Stoxx 600 index slipped 0.3 per cent, after closing sharply higher in the previous session.
“Whether it be Spain, France or Germany, the European Central Bank has to basically take into account stickier inflation because you’re talking about three out of four of the biggest economies in Europe,” said Michael Hewson, chief market analyst at CMC Markets UK.
Higher food prices pushed the 12-month inflation rate in France to 7.2 per cent in February from 7.0 per cent in the preceding month.
In Spain, consumer prices rose 6.1 per cent year-on-year in February, over a 5.9 per cent rise in the 12 months to January.
Investors are expecting the ECB to hike interest rates by 50 basis points in its upcoming March meeting, taking the benchmark rate to 3 per cent. Rates are expected to hit a peak of 4 per cent in July.
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All eyes are now on preliminary euro area wide consumer price inflation data for February due on Thursday.
Also pressuring European stocks was a rise in euro zone government bond yields, with the yield on Germany’s 10-year bond, the bloc’s benchmark, hitting its highest level since 2011.
Banks, that tend to benefit from a high-rate environment, rose 1.4 per cent and briefly hit their highest level since 2018, also helping keep Spain’s lender-heavy IBEX index above water.
“Given that inflation is proving stubborn despite some signs of slowing down and the ECB is forecast to continue on its tightening cycle until at least the summer, we are likely to see significantly higher net interest income for European banks as we head through 2023,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
The broader Stoxx 600 index clocked its worst weekly decline this year on Friday, driven by worries that central banks in the US and euro zone would raise interest rates to tackle stubborn inflation.
The index still logged its fourth positive month in five, ending February 1.7 per cent higher.
Spanish pharmaceutical company Grifols‘ shares dropped 9.1 per cent after its 2023 outlook disappointed analysts, who were looking for a better recovery in margins.
Bayer fell 3.9 per cent after the agriculture and healthcare company said operating earnings would likely decline in 2023.
The healthcare index closed 1.5 per cent lower, weighing on Europe’s Stoxx 600.
Swedish heating technology specialist Nibe Industrier slid 7.6 per cent after it said it is in the process of considering a potential acquisition of all or a majority of Japan’s Fujitsu General.
Ocado sank 12.2 per cent, to the bottom of the Stoxx 600, after the online supermarket and technology group reported a worse-than-expected full-year loss. REUTERS
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