European shares extended losses on Friday, falling in line with the global sell-off sparked by hot US inflation figures and fears of more aggressive interest rate rises ahead.
The pan-European Stoxx 600 fell 0.88% after data showed US January consumer prices rose 7.5% – the biggest rise in 40 years.
Investors took flight as St. Louis Federal Reserve Bank President James Bullard said the data had made him “dramatically” more hawkish.
“The bigger than expected jump in US CPI to a 40 year high of 7.5% in January, with core prices tipping the scales at 6%, sent yields sharply higher with the US 10-year surging through 2%, while the 2-year yield blasted through 1.5%, rising 26bps on the day, to finish above 1.6%,” said CMC Markets analyst Michael Hewson.
“This week alone the US 2-year yield has risen by 30 basis points. These accelerated moves higher are indicative of a bond market pricing in a much higher probability that the Federal Reserve could raise rates by 50bps when they next meet in March, and go a lot faster over the rest of the year.”
“The move higher was given added fuel by … James Bullard who said he favoured a 50bps hike in March, with another 50bps by July, while also suggesting that the central bank hold an emergency meeting and hike early. This seems unlikely given that they are still doing QE and it’s due to end in March anyway, so a few more weeks isn’t likely to change too much, but it’s clear that he is spooked by yesterday’s inflation number, and he may not be alone.”
In the UK, official data revealed that economy shrank less than expected in December as activity to combat the Omicron variant helped offset the virus’s impact on services.
Output fell 0.2% from November to December in the largest contraction since January 2021, the Office for National Statistics said. The drop was smaller than the 0.6% average decline forecast by economists in a Reuters poll.
In equity news, Delivery Hero shares slumped a further 10% after a 25% plunge on Thursday driven by weaker-than-expected forecasts by the food delivery platform.
Volvo Cars slipped 4.7% after posting earnings below analysts’ expectations, pressured by the lingering global supply shortages.
State-controlled French power company EDF fell after cutting its estimate for its French nuclear output in 2023 from 340-370 TWh to 300-330 TWh.
On the upside, food products and sugar producer Tate & Lyle gained 8% after an upbeat final three months of 2021 led to a rise in revenues.
