Europe close: Stocks drop after US CPI data and amid bond spread jitters
European shares were walloped again on Friday as a hotter-than-expected print for US consumer price inflation added to the pressure in rates markets from euro area 'fragmentation' fears that were already doing the rounds.
The good news, perhaps, was that there was conviction in some quarters that it would only be a matter of time - and politics - before the European Central Bank rolled out a tool to control undue spread widening in euro area public debt markets, as John Authers pointed out in a Bloomberg article.
Against that backdrop, the benchmark Stoxx 600 was down by 2.69% to 422.71, alongside a 3.08% fall on the German Dax to 13,761.83 and a 5.17% drop on the FTSE Mib to 22,546.48.
Euro/dollar meanwhile slumped 0.93% to 1.0518 and euro area government bonds were under selling pressure led by losses in periphery country debt.
Commenting on markets' reaction to the latest CPI figures Stateside, IG chief market analyst Chris Beauchamp said: "Stocks, and investors, are very jumpy about inflation once again. This was the case before today’s US CPI figure, thanks in no small part to the ECB, but this afternoon has really set the cat amongst the pigeons.
"Annual and monthly figures came in higher than last month, and no one seemed to want to hang around and look at the core figures, which didn’t paint quite the same picture."
Meanwhile, Germany’s central bank cut its economic growth forecasts for the country on Friday, as the war in Ukraine and red-hot inflation impacted the post-Covid recovery.
Deutsche Bundesbank said it now expected the German economy to expand by 1.9% this year, down from the 2.5% it pencilled in last December, with 2023 and 2024 growth expected to reach 2.4% and 1.8%, respectively.
“Germany’s economic recovery is likely to continue, but at a considerably more subdued pace than projected last December,” the central bank said in its statement.
In equity news, shares in Italian banks fell sharply as increasing risk premiums on the country's government bonds, in which lenders have large holdings, spooked investors.
Shares in both UniCredit and Banco BPM both plunged, triggering automatic trading suspensions. Intesa Sanpaolo and BPER Banca were also lower.
Pharma giant GSK managed to keep its head above water despite the downdraft in stockmarkets after the company said its vaccine for respiratory syncytial virus was successful in a late-stage trial for people over 60.
Just Eat was higher on a report its US wing has attracted preliminary interest from private equity firms, including Apollo Global Management.